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The FSA Spy market buzz – 31 July 2020

Oreana hires; China hedge fund bubbles; Central bank clichés; GigaTech earnings blow out; Debt and treasury yields; Citibank’s green commitment; Advice from losers and much more.
Market Spy

Is there a government anywhere in the world, except, perhaps New Zealand, that is not annoying its citizens over Covid? This week Hong Kong riled up Spy by banning sitting down in restaurants (since, partially rescinded). Botswana banned cigarettes. South Africa banned booze, unbanned it, then banned it again. The UK stopped people visiting their families. France banned visits to Catalonia. Singapore…the list could go on. Spy has the overwhelming impression that no government really knows what to do about Covid and they are all praying something, somewhere comes along to save their economies, their elections and their reputations before the people lose the plot entirely and revolt. Right now, as a strategy it looks about as successful as those Tesla short-sellers.

News reaches Spy that Oreana, the Australian / Hong Kong wealth manager has just added an investment analyst to its team. The firm has recruited Florence Savage to work with CIO, Isaac Poole, in their Hong Kong office. Florence was previously with Enright, Scott & Associates performing macroeconomic research and has studied at SOAS in London, as well as City University in Hong Kong. It gladdens Spy’s heart to see Hong Kong wealth managers adding roles during these rather tough and unusual times.

It was former Fed Chairman, Alan Greenspan, who thought bubbles could only be “ascertained after they had burst”. Spy, for one, thinks we can be a little more direct. In China, not only have stocks been on a tear but funds to manage people’s money buying those stocks have been on a tear, too. Fund tracker, Shenzhen PaiPaiWang Investment & Management, reports that in July alone, new fund offerings in the hedge fund space rose to more than 1,500. The average for the first six months of the year was 1,217 per month. This implies that more than 8,800 hedge funds were launched in the first seven months of the year. Hedge fund is, of course, a slightly misleading term in China, as many are not able to sell short, thus hedging is not quite possible. What they do have the ability to do, is leverage up. With cheap money everywhere, leverage is everywhere, too. For funds launched in the last year, many of those juiced stats, must look very enticing indeed. Spy hopes that Chinese investors remember the cliché, ‘you can’t buy past performance’ even if it comes with a juicy performance fee!

If anyone is looking for a reason to be bullish, you could do worse than see the numbers of people who simply hate this rally in the S&P 500. According to a survey, carried out regularly since 1987 by American Association of Individual Investors, bears have outnumbered bulls for a consecutive 23 weeks.  Not since 1990, has this survey produced such an extreme result. Why bullish? Well, that means there are a whole lot of bears that could throw in the towel and turn positive and with it bring a lot more buying power.


Spy hates to be too critical, but he rather wishes that central bankers could come up with a few fresh lines instead of the tired clichés they subject us all too. Jerome Powell this week said, “He was hoping for the best but preparing for the worst.”  Where have we heard that before? So, Jerome, how about, “I am dreaming of a white Christmas but preparing for floods instead” or “ I trust we will all be watching a jolly episode of Big Bang Theory but preparing that it might be Game of Thrones, instead.” Would that be so hard?

American MegaTech or GigaTech if you like, blew Wall Street away again last night. Amazon, Facebook and Google all beat expectations. But the real showstopper was Apple. In almost every possible part of its business, it defied gravity, Street expectations and the Covid economy to deliver simply stunning results and then a 4:1 stock split. Is it any surprise that funds such as T Rowe Price’s Global Tech Fund, with Amazon as its biggest holding, is up 33% YTD or that AB’s International Tech Portfolio, with Apple as its biggest holding, is up 31% YTD? As long ago as 2015 one Swiss private bank fund selector told Spy, “Tech is the absolute core of our equity portfolios.” How very right he was.

If a picture is worth a thousand words, how much is a table? Spy saw this data kicking around this week and compiled the table himself. Never has so much debt, issued by so many governments, cost so little. Spy thanks his lucky stars every day he is not a pension fund or insurance liability fund manager.

 Another day, another press release on ESG finance. This week it was Citibank who put on its green cape and strutted the stage like a climate superhero. They have vowed to fund $250bn of environmental initiatives over the next five years. It may sound like a lot of money but $50bn a year, globally, for such an enormous bank, is not exactly a gamechanger. Spy does not want to be a Greta, but the real commitment will come when Citi vows to stop funding things that negatively affect the climate. Yes, I am looking at you Big Oil, Big Aluminium and Big Coal.

Jim Paul and Brendan Moynihan wrote a book a few years entitled “What I Learned Losing a Million Dollars”, which Spy recommends, and in that tome they wrote,  “The potential for temporary success by pure luck beguiles people into thinking that trading is a lot easier than it is. The potential for even temporary success doesn’t exist in any other profession. If you have never trained as a surgeon, the probability of your performing successful brain surgery is zero. If you have never picked up a violin, your chances of playing successful solo violin in front of the New York Philharmonic are zero. It is just that trading has this quirk that allows some people to be successful temporarily without true skill or an edge—and that fools people into mistaking luck for skill.” All those taxi drivers and RobinHood investors playing this casino market would do well to take note.

Until next week…

Part of the Mark Allen Group.