Good Evening,
A gaunt through the week’s events, having only been back at
it a day or three and travelling, its taking some time to get back into it.
Does anyone else find it concerning how predictable central banks are becoming
in their actions for short-term praise? Rather than longer-term policy
benefits? Not exactly exuding confidence in the markets, but for the populist
investors it’s a license to print money.
Someone got up one morning and realised the dollar impacts
on the global economy, l’économie de base/basic economics.
Only two days before, William Dudley, head of the New York branch Fed, told a
conference that it was “important not to overreact to short-term
market developments”.
The poignant part being Dudley accepted that the argument
for tightening monetary policy as early as September seemed “less compelling
to me than it was a few weeks ago.” (FT :). Fed’s William Dudley cools talk of September lift-off.
With a sense of relief felt by the markets, we had good news
for the US economy, with revisions of the GDP to 3.7% (annual equivalent), up
from 2.3%. Those in the know are now are campaigning for a rate rise, having
only a few days previously been remonstrating for prudence on interest rates
are now (WSJ).
Just don’t tell the bond king Jeffrey Gundlach.
We have had Venezuela cryingfoul and inferring the need for an emergency OPEC meeting. With
some suggesting American production was going to fall (and inventories), oil
about turned and rocketed. The concern being this didn't catch many
(if anyone) off-guard, unless of course you’re a trader snoozing at your
desk at 4am (GMT) and making significant profit, surely this never happened.
Was this bottom (bounce) the obvious call
for every-man and his dog? It certainly looks that way with all
the various commentators agreeing. Momentum and sentiment set the volume
alight with a mighty bounce. With the issues of liquidity in China and the
realities of emerging markets, it’s likely the markets won’t deny the realities
for forever.
All one needs now is further liquidity crisis to impact on
the global bounce. What say you for further Chinese market woes, with the
suspended bankrupts coming out of the closet or better still, “a large
failure?” This will be evident not only in the capital outflows but
productivity.
To continue the theme, China'srichest man says its time for government to abandon high growth rate 'fantasy'.
Irony really, what with a company built on leverage and the need for growth?
With international deals getting bigger, it’s starting to signify a complete
cooling in the Chinese domestic market (ex-growth or limited and suspicions of
a recession). With Wanda buying the Ironman Triathlonowner for 585 million pounds (if you include the debt), it’s a
deepening sign of what is to come for China.
With memories of Japan in the 80/90’s,
we have had FOSUN on the acquisition trial with Club Méditerranée (FT)
and partnership with Thomas Cook (Reuters). Remember this is on the back of acquiring stakes in Cirque du Soleil and Jeff Robinov’s
Studio 8, plus Meadowbrook
and more (UK Property's JVs to come). Anyone for the high top?
Latterly, we have Albert Edwards via PM@FT, with a suggestion we have a 99.7 per cent
probability that we are now in a bear market. Worse, the professor of
economics, Christopher Balding wanting to hug the Chinese, perhaps in sympathy. What of the Chinese
taxation revenues in decline?
There’s suspicions that China isn't perhaps
telling all, with a focus on consumption. Whether a valid theme, it
certainly questions any significant bounce. Especially in those economies more reliant
on commodity sales. Or perhaps one should rephrase, were reliant,
leaving shortfalls in their budgets.
Certain countries are now ‘attempting’ to entice those with
wealth to come and buy into the bigger picture, of course without trace. Surely not, the DoJ et al, do need a new dog to
kick for compensation as banks have rolled over and coughed up the moular.
Whatever next? Dubai property crash?
In the US markets we have Icahn acquiring a stake in Freeport-McMoRan (NYSE: FCX).
One of the favoured leveraged miners shorts of 2010-15 (to be exact 4 years in
total), now coming back with a decent cost cutting exercise to enable the company to keep the lights on (contrary
to EMC thoughts).
Whether one should read too much into Icahn’s8.46% stake is open for debate. Icahn’s ability to buy value in
commodities is questionable, as evidenced by their ventures into Chesapeake with
10.98%. It’s not a great call in the short-to-mid-term. Over the
longer-term, there’s a reduced risk of failure in FCX thanks to cost
cutting, but why buy into a slump until the variables have played out?
Freeport-McMoRan (NYSE: FCX), have completed the
unthinkable in avoiding the “majority” of a fundraiser in excess of the announced $1Billion. Not only does it indicate the bottom of the “trough in their cash
demands” as Morgan Stanley seem to think, but give some hope for the future.
If commodity prices appreciate from here, FCX have
done just enough to avoid significant issues with their announcement
- spending cuts in response to “Market Conditions” read in
conjunction with their previous Oil & Gas capital budget commitments.
What pantomime will next few weeks bring? A predictable
element of about turns, anticipated volatility with the big boys "torching
each other on a daily basis." Protection anyone???
In the current climate, it would be wise to consider
business models, especially those “bidding” on certain contracts
at the moment. Where the needs of winning a bid should not be at the expense of
profitability. We shall be hearing about this later in the year…rest assured,
even those larger entities with “currently” good balance sheets.
Finally, it would be rude not to finish off with a
validation, even for "foster carers" of the stock-market, JD Capital are exiting capital southbound!
Atb Fraser
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