Posted inFSA Spy

The FSA Spy market buzz – 15 March 2024

Grantham on bubbles, NinetyOne’s marvellous headline, Invesco celebrates, oil profits gush in the desert and much more.

In Clive James’ collection of essays on political, literary and artistic icons of the 20th century, Cultural Amnesia, his introduction to jazz musician Miles Davis, begins, “Demanding to be heard but not always inclined to make the listening easy…” This line was running through Spy’s head this week thinking about the state of the world. Many prominent figures from the world of economics, politics, investment and academic history are warning, perhaps Cassandra-like, that the world is at the most dangerous inflection point since the 1930s. Ideological and opportunistic wars, climate change, resource scarcity, AI, epidemics, cultural divides, geriatric privilege versus youthful ambition, social media and so much more are fuelling a kind of bubbling rage between the haves and have nots. The listening may not be easy, but Spy strongly suspects these rather shrill voices demand to be heard.

Spy loved this insight by Jeremy Grantham of GMO, “But every technological revolution like this [AI] – going back from the internet to telephones, railroads, or canals – has been accompanied by early massive hype and a stock market bubble as investors focus on the ultimate possibilities of the technology, pricing most of the very long-term potential immediately into current market prices. And many such revolutions are in the end often as transformative as those early investors could see and sometimes even more so – but only after a substantial period of disappointment during which the initial bubble bursts. Thus, as the most remarkable example of the tech bubble, Amazon led the speculative market, rising 21 times from the beginning of 1998 to its 1999 peak, only to decline by an almost inconceivable 92% from 2000 to 2002, before inheriting half the retail world.” Wise words.

In fund marketing a good headline is vital to catch attention. Hat tip to Sahil Mahtani, head of macro research at Anglo-South African asset manager, NinetyOne, for his “The geopolitical future that has already happened”. It is worth reading the piece in full, here, which covers future military spend, energy, the global south and other macro effects.  “Throughout history it has been nearly impossible to plan for the future. As experienced most recently, when the world was thrown into turmoil during the pandemic. Markets are still recovering and experiencing the aftershocks. What will 2030 hold? While human affairs are fundamentally un-modellable, we believe it makes sense to prepare, in the words of Peter Drucker, “for the future that has already happened.”” It is surely worth a try, reckons Spy.

Take a little bow, Invesco. This week, the firm is celebrating 25 years of QQQ. That would be the Nasdaq 100 ETF that has become the world’s fifth largest. It has about $250bn in assets. The ETF, which has been a building block of many a sensible investor’s portfolio for a quarter of a century, has inspired many imitators. In an era of “large cap growth”, backing QQQ has made a decent amount of money and charged merely 0.20% for the privilege.

Mirror mirror on the wall, who is the most profitable of them all? Aramco, the Saudi Arabian oil giant just posted profits of $121bn, which just happens to be larger than Meta ($39bn), Amazon ($30.4bn), Nvidia, ($29.8bn) and Tesla ($15bn) combined. If anyone thinks the end of the oil era is going to be over any time soon, Spy will leave you with Exhibit A above and rest his case.

Gold or digital gold? That is the question. Spy thinks the digital version is clearly winning. This week, the cumulative assets in the eleven spot Bitcoin ETFs listed in the United States have risen above $60bn. That is more than $3bn higher than the AUM of the largest gold ETF, GLD, which only has about $57bn – at the time of writing. BlackRock’s IBIT has already accumulated $15bn and Fidelity’s Wise Origin just over $9bn, according to VettaFi. Lack of supply and ample demand has driven Bitcoin above $70,000 this week. What’s worse, is that NFTs and meme coins seem to be coming back from the dead with a vengeance. Spy has a dancing monkey gif to sell if anyone is interested. $1m and it is yours. Bargain.

Spy has heard from numerous sources that debate is raging over AI’s use (or potential use) in asset management – in everything from stock selection, portfolio construction, risk management, sales to marketing. The fear mongers suggest that jobs will disappear left, right and centre – consumed by the AI behemoth. For what it is worth, Spy’s take is that the winners will be those who learn to master the tools; those with their heads in the sand are the doomed, if not the damned.

Spy has two quotes for you this week, “Every great bubble has its share of urban myths – fanciful anecdotes which reveal the spirit of the age.” ~ Edward Chancellor and “When you feel like bragging, it’s probably time to sell.”  ~ John Neff

There has been precious little outdoor advertising of late, but this was spotted by an eagle-eyed contributor in Singapore week. PIMCO is plumping for a direct, and rather cheeky, question. “If you’re looking for income, why go anywhere else?”  Spy could be argumentative and make a few suggestions but that is probably best left for those offering a decent glass of Chianti over which to share the discussion.

Until next week…

Part of the Mark Allen Group.