The pessimism was palpable. Spy had a long chat this week with a commodities portfolio manager in London who was warning that food shortages are about to get seriously acute. “You simply have no idea how bad things are about to get.” He was talking about wheat exports that have been hampered getting out of Ukraine. It is not that the rest of the world does not export some food, it is the scale at which Ukraine usually does. He likened Ukraine for grains to Saudi Arabia for oil. “It is the swing producer that can always provide more.” However, Putin’s war, which has taken the nastiest of turns with grain diversions and, even, destruction is wreaking havoc. It is enough to put your humble Spy off his cocktails and worry about his daily croissant habit.
Sign of the times reckons Spy. A few weeks ago, a US manager named Merk launched the Stagflation ETF (STGF), which replicates the Solactive Stagflation Index. The index includes components that are expected to benefit, either directly or indirectly, from persistent inflation, including in an environment of weak economic growth, in other words, stagflation. This feels like yet another “paint by numbers” investment idea dreamed up in a faceless boardroom and Spy would imagine there are better ways to defend oneself. With a fee of 0.45%, the ETF is not exactly on the cheap side. But then that is the whole point, isn’t it?
The bubble has burst and now the Cassandras who were previously ignored are yelling, “I told you so” to anyone who will listen. The question is: was it all a bit obvious, wonders Spy? In 2021, we had 600 SPAC listings. Of those, 10, yes, 10! were for air taxi companies whose predictions of profits were probably as honest as a politician’s promise of tax cuts. Food delivery stocks went public by the bucket load, as if we would all never eat in a restaurant ever again. Austria issued a 100-year bond at 0.88%, laughing all the way into its apple strudel. Dogecoin was worth more than $70bn at its peak. The Bored Ape NFT sold for a record, and idiotic, $3.4m. With this tableau of madness, is it any real surprise that markets are now getting hammered?
And hammered they most certainly are getting. Since 2009, the Nasdaq has managed a gain every single year for 12 years. 2013 was 37%, 2020 even better at 49%. To date this year, the Nasdaq is now down 27%. Walmart, that bastion of recession-proof earnings, is down 20% in the last three days alone. Even the dip buyers are more nervous than a chap who has been asked to comment by his girlfriend, “Does this dress makes me look fat?” Fund managers are getting nervous too. In the latest Bank of America Fund Manager Survey, the bearishness is palpable. Cash holdings have risen to a whopping 6.1%, that is the highest figure since the 9/11 terrorist attack in 2001. If there is a bright side to all this, perhaps this extreme bearishness is the kind of despair that arrives just when markets are bottoming. Although do bear in mind that the Luna crypto fell 99% and then promptly fell 99% again. Just because something is down, does not mean it can’t fall further.
The private equity fellows, Collaborative Fund, have a very thoughtful blog. This week, it caught Spy’s eye: “Half of the 15,000 mutual funds in the US are run by portfolio managers who do not invest a single dollar of their own money in their products.” That seems shameless to Spy. It is really worth reading the whole piece because it cogently argues that the problem with expertise, is that it eventually holds one back as radical new methods of doing something become hard to imagine. It is the paradox of the highly skilled and experienced. It applies in almost every field, and certainly to investing.
Baillie Gifford’s Tom Slater, of Scottish Mortgage Trust (SMT) fame, is feeling rather bruised on China. His bets that Chinese tech platforms would perform better than their Western counter parts has not panned out as expected. He is now concerned about how sanctions might further erode Chinese company profits. For one of China’s greatest bulls, this represents something of an about turn. SMT has lost nearly half its value since November.
Elon, yes, that Elon, has been saying things this week most people are afraid to. The maverick CEO of Tesla and wannabe Twitter owner tweeted, “Exxon is rated top ten best in world for ESG by S&P 500, while Tesla didn’t make the list! ESG is a scam. It has been weaponized by phony social justice warriors.” Ouch. However, the toughest part is the grain of truth in it.
Have some interest rates already begun to peak? Chinese banks cut the five-year loan prime rate, a reference for mortgage rates, to 4.45% from 4.6%, the most since the market-based borrowing cost was first made public in 2019, according to a statement by the People’s Bank of China, reported Bloomberg. While the amount is tiny in the grand scheme of things, it is perhaps the signal that counts a whole lot more, reckons Spy
The most light-hearted story of the week comes from Japan. An unemployed chap who was mistakenly sent 46.3 million yen ($362,000) in pandemic funds is being asked for it back. Unfortunately for the authorities, he seems to have gambled it all away on international gaming sites. He has now been arrested. Easy come, easy go.
Spy’s quote of the week: “The good news is that once your portfolio goes to $0, it’s recession proof.” ~ Anonymous.
Until next week…