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Blain: Markets Are “Distracted, Confused, & Not Seeing The Downright Obvious”

Blain: Markets Are "Distracted, Confused, & Not Seeing The Downright Obvious"

Authored by Bill Blain via MorningPorridge.com,

“ Chaos…

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Blain: Markets Are "Distracted, Confused, & Not Seeing The Downright Obvious"

Authored by Bill Blain via MorningPorridge.com,

“ Chaos is the law of nature. Order is the dream of man.”

Inflation will dominate the headlines while the US earnings season kicks off. The prospects for stocks on the back of falling numbers and crashing consumer sentiment bode ill for recovery, and strongly suggest there is further market downside to come in Q3.

Even though I am faced with this uncomfortably empty screen to fill with words of market and economic wisdom, it’s difficult to be unhappy this glorious morning. The sun is shining! I just had a great swim in the river, my wife and dog apparently love me, and I’m going on holiday next week.

As I said, the only fly in the ointment is writing this morning’s Porridge on the week ahead.

After last week’s strong US jobs report – momentarily suggesting there is less of a global recession threat – this week will reverse into rising inflation fears again, raising the higher/faster interest rate spectre. We’ve got a host of inflation numbers coming out, but also the shutdown a key Russia/Europe gas pipeline for “maintenance”, which many analysts think will crush European efforts to build winter reserves, promising further energy price spikes through the second half of this year. The talk in markets is all further China lockdowns, and Euro-dollar parity as inflation and recession look increasingly dangerous for Europe in particular.

There is so much to say about the up/down of markets, but I am not sure I can articulate it clearly! Therefore I think I shall go a bit free form this morning – throw a couple of ideas at the screen and see what happens:

Broadly, markets are distracted and confused, not seeing the downright obvious. I’m trying to figure out how vulnerable that leaves them to shock and awe surprises, the actuality of the macro-outlook, and the systemic consequences of policy mistakes. The only upside in such conditions is they do create price moves that translate into opportunities!

Last week was an extraordinary lesson in markets – watching tech stocks recover on the hope recessionary expectations would mean a slower series of interest rate rises, thus raising hopes for accommodative central banks to juice markets higher to stave off recession. Doh! Some market commentators say it’s a reverse rotation out of value/fundamental stocks back into more speculative growth stocks – saying the 9 month tech bear phase is basically played out, and it’s time to buy corrected tech names…

Really? It called talking their book.

There is an assumption the market knows best, and will set the right price of everything, based on the market being the collective intelligence of all participants. Except it is not. The market has no memory and certainly doesn’t remember making the same mistakes over and over again. The market is just a voting machine. It’s a form of popularity contest – whoever markets/plugs their ideas/positions best, wins!

A good example of the kind of hype that propels stocks in febrile markets, and ridiculous false assets like cryptos and NFTs, is investors ongoing fascination with Cathie Wood’s ARK. The narrative is simple – it must be a great investment, look what it was worth! The papers are full of stories that support it: I saw a headline on CNBC about the charts suggesting a rally (but it was behind a paywall, and it’s probably bunkum anyway). Most of the stocks in the ETF have never, and never will make a profit. Market participants believe what they want to believe, and if they believe ARK is undervalued because only Cathie perceives the future – their call.

It’s not the market that is stupid – its participants!

The reality is nothing has changed about speculative tech stock fundamentals. Food delivery companies are still struggling to deliver food at a profit. Internet warehouses and subscription services are still struggling to make all the expensive approaches work. Media manipulation companies are still trying to persuade increasingly distracted used to let them monetise us through advertising. It’s all dressed in a wash of modernity, the next-new-new-thing, but Tech stocks that sound ever so clever and remain ever so unprofitable will likely remain so. And they remain vulnerable to shocks. This morning Tencent and Alibaba are leading further collapses in value after Chinese fines on their monopolistic policies. Regulation bites.

The next shock for markets is likely to be corporate earnings. Thus far they’ve been insulated by the pandemic reopening. The Q2 numbers start this week and will likely show the impact of long-term supply shocks, energy inflation and the increase labour scarcity as workers seek better paid employment. (If they don’t, be suspicious!) Corporates will put the best possible spin on their numbers, but the macro economic reality has to bite soon. As interest rates rise, and corporate credit spreads widen faster, leverage within the corporate sector will start to take down multiple credit zombies – overly indebted companies. All these years spend borrowing money at ultra-cheap rates to finance stock-buy-back programmes will be shown to have been valueless; the company bankrupted, and the stock tanked!

I’ve come to a very simple conclusion about economics. The reason it’s called the dismal science is it’s basically chaotic. Economics is all about analysing events to understand what happens next. But events have a path all of their own – we can plot broad expectations, but not the increasingly unpredictable consequences that ripple outwards from every decision like a nuclear chain reaction. The way in which inflation and interest rates will impact the economy is very well documented and understood by students of economic history – perhaps not so well by inexperienced investment managers – the ones who buy the hype.

One of the biggest risks to markets is always policy mistakes, the obvious one being central banks triggering a recession through the pace of interest rate hikes, or being too slow to address inflation.

But there are equal risks in politics.

There is a frightening headline on Bloomberg this morning – 4.5 million UK families are already in financial trouble as a result of financial distress. More are struggling with the consequences of higher energy and food prices. Wages have failed to address inflation, and the welfare net is full of holes. Food banks and free school dinner schemes have been instituted by concerned individuals around the country. Even the financial services industry will not be immune – the BBerg article noted workers are cutting their pension saving contributions.

Yet, the headlines in the UK are all about the multiple number of Conservative Politicians putting themselves forwards as our next prime minister. I forced myself to watch the Sunday Political Shows, and read the papers to understand their approach – and came to the conclusion most of the challengers are economically illiterate.

Only one of them seemed to connect the urgency of the situation – the need for tax cuts to boost jobs and consumer sentiment to address the looming stagflation/recession threat, but all the interviewer wanted to know about was his non-dom status 2 decades ago. Its going to be that kind of contest – how clean they are. Not how they will save the UK economy. Most of other candidates seemed blithely unaware of the reality on the streets.

The biggest threat to the UK Economy is the urgent need for decisions, but the fractured government is going to be spending the next three months listening to candidates blather about how different they are to Boris.. Words… just words.

Tyler Durden Mon, 07/11/2022 - 08:50

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Economics

EasyJet share price has collapsed by 53% in 2022. Is it a buy?

The EasyJet (LON: EZJ) share price has hit turbulence as concerns about demand and soaring costs remain. It dropped to a low of 293p, which was the lowest…

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The EasyJet (LON: EZJ) share price has hit turbulence as concerns about demand and soaring costs remain. It dropped to a low of 293p, which was the lowest level since November 2011. It has plummeted by more than 82% from its all-time high, giving it a market cap of more than 2.5 billion pounds.

Is EasyJet a good buy?

EasyJet is a leading regional airline that operates mostly in Europe. It has hundreds of aircraft and thousands of employees. In 2021, the firm’s revenue jumped to more than 1.49 billion pounds, which was a strong recovery from what it made in the previous year.

EasyJet’s business is doing well as demand for flights rises. In the most recent results, the firm said that forward bookings for Q3 were 76% sold and 36% sold for Q4. For some destinations, bookings have been much higher than before the pandemic.

EasyJet’s business made more than 1.75 billion in revenue in the first half of the year. This happened as passenger revenue rose to 1.15 billion while ancillary revenue jumped to 603 million pounds. The firm managed to make a loss before tax of more than 114 million pounds. It attributed that loss to higher costs and forex conversions.

As I wrote on this article on IAG, EasyJet share price has collapsed as investors worry about the soaring cost of doing business. Besides, jet fuel and wages have jumped sharply in the past few months. Also, analysts and investors are concerned about flight cancellations in its key markets.

Still, there is are two key catalysts for EasyJet. For one, as the stock collapses, it could become a viable acquisition target. In 2021, the management rejected a relatively attractive bid from Wizz Air. Another bid could happen if the stock continues tumbling.

Further, the company could do well as the aviation industry stabilizes in the coming months. A key challenge is that confidence in Europe and the UK.

EasyJet share price forecast

EasyJet share price

The daily chart shows that the EasyJet stock price has been in a strong bearish trend in the past few months. During this time, the stock has tumbled below all moving averages. It has also formed what looks like a falling wedge pattern, which is usually a bullish sign.

The Relative Strength Index (RSI) has dropped below the oversold level while the Awesome Oscillator has moved below the neutral point.

Therefore, in the near term, the stock will likely continue falling as sellers target the support at 270p. In the long-term, however, the shares will likely rebound as the falling wedge reaches its confluence level.

The post EasyJet share price has collapsed by 53% in 2022. Is it a buy? appeared first on Invezz.

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Economics

August data shows UK automotive sector heading for a “cliff-edge” in 2023

With an all-out macroeconomic storm brewing in the UK, the Bank of England (BoE) has been forced to intervene in the tumultuous gilt markets, particularly…

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With an all-out macroeconomic storm brewing in the UK, the Bank of England (BoE) has been forced to intervene in the tumultuous gilt markets, particularly towards the tail end of the yield curve (details of which were reported on Invezz here).

Car manufacturing is a key industry in the UK. Recently, it registered a turnover of roughly £67 billion, provided direct employment to 182,000 people, and a total of nearly 800,000 jobs across the entire automotive supply chain, while contributing to 10% of exports.

Just after midnight GMT, data on fresh car production for the month of August was released by the Society of Motor Manufacturers and Traders Limited (SMMT).

Strong annual growth but monthly decline

Car production in the UK surged 34% year-over-year settling at just under 50,000 units. This marked the fourth consecutive month of positive growth on an annual basis.

However, twelve months ago, production was heavily dampened by a plethora of supply chain bottlenecks, work stoppages on account of the pandemic, and a worldwide shortage of microchips. The August 2021 output of 37,246 units was the lowest recorded August volume since way back in 1956.

Although the improvement in output is a good sign, equally it is on the back of a heavily depressed performance.

Source: SMMT

To place the latest data in its proper context, production is still 45.9% below August 2019 levels of 92,158 units, showing just how far adrift the industry is from the pre-pandemic period.

Since July, production in the sector fell 14%.

The fact that the UK is facing a deep economic malaise becomes even more evident when we look at full-year numbers for 2020 and 2021.

In 2020, total output came in at 920,928 units, while 2021 was even lower at 859,575. The last time that the UK automotive sector produced less than one million cars in a calendar year was 1986.  

Unfortunately, 2022 has seen only 511,106 units produced thus far, a 13.3% decline compared to January to August 2021.

In contrast, the 5-year pre-pandemic average for January to August output from 2014 – 2019 stands well above this mark at 1,030,527 units.

With car manufacturers tending to pass price rises on to consumers, demand was dampened by surging costs of semiconductors, logistics and raw materials.

The SMMT noted,

The sector is now on course to produce fewer than a million cars for the third consecutive year.

Ian Henry, managing director of AutoAnalysis concurred with the SMMT’s analysis,

It is expected that by the end of this year car production will reach 825,000, compared to 850,000 a year ago, but that’s 35% down on 2019 and a whopping 50% on the high figure of 2017.

Sector challenges

Other than the obvious fact that the UK’s economic atmosphere is in hot water, the automotive industry (including component manufacturers) has been struggling to stave off the high energy costs of doing business.

In a survey, 69% of respondents flagged energy costs as a key concern. Estimates suggest that the sector’s collective energy expenditure has gone up by 33% in the last 12 months reaching over £300 million, forcing several operations to become unviable.

Although the government enacted measures to cap the price of energy and ease obstacles to additional production, Mike Hawes, the CEO of SMMT, said,

This is a short-term fix, however, and to avoid a cliff-edge in six months’ time, it must be backed by a full package of measures that will sustain the sector.

Due to the meteoric rise in costs across the automotive supply chain, 13% of respondents were cutting shifts, 9% chose to downsize their workforce and 41% postponed further investments.

Bleak outlook

Uncertainties around Brexit and the EU trade deal are yet to be resolved.

Moreover, the energy crisis is poised to get even more acute unless Russia withdraws from the conflict, or international leaders ease restrictions on Moscow. Last week, I discussed the evolving energy crisis here

With global central banks expected to tighten till at least the end of the year, demand is likely to be squeezed further pressurizing British car manufacturers.

Electric vehicles made up 71% of car exports from the UK in August, but robust growth in the sector looks challenging in the near term, in the absence of widespread charging infrastructure, high electricity prices and globally low consumer confidence.

Although energy subsidies could provide some relief in the immediate future, the industry will remain in dire straits while investments stay low and the shortage in human capital persists, particularly amid the push for EVs.

Given the prevailing macroeconomic environment, and severe market backlash to Truss’s mini-budget (which I discussed in an earlier article), the sector is unlikely to turn the corner any time soon.

The post August data shows UK automotive sector heading for a “cliff-edge” in 2023 appeared first on Invezz.

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Economics

BRV China Holds Singapore Explorer Day at SMU

BRV China Holds Singapore Explorer Day at SMU
PR Newswire
SINGAPORE, Sept. 29, 2022

Brings Together Leading Entrepreneurial Minds Across China, Southeast Asia, North America
SINGAPORE, Sept. 29, 2022 /PRNewswire/ — BlueRun Ventures China (BRV Chin…

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BRV China Holds Singapore Explorer Day at SMU

PR Newswire

Brings Together Leading Entrepreneurial Minds Across China, Southeast Asia, North America

SINGAPORE, Sept. 29, 2022 /PRNewswire/ -- BlueRun Ventures China (BRV China), a leading early-stage technology-focused venture firm, yesterday hosted Explorer Day in Singapore in collaboration with the Institute of Innovation & Entrepreneurship of Singapore Management University and SGInnovate, a government-owned innovation platform in Singapore to support deep technology entrepreneurship. The event brought together more than 80 founders and pioneers – local entrepreneurs, government associations, academics and venture capitalists – who discussed the company's global investment strategy and emerging trends in the fields of artificial intelligence (AI), enterprise services, Web3, robotics and the global expansion plans of start-ups.

BRV China sees significant opportunity for technology investment globally and shared the following insights during the event:

  • Despite market volatility, BRV China remains confident in the fundamental value of many portfolio companies as high-quality start-ups capable of developing disruptive innovations have continued to demonstrate an ability to secure third-party capital.
  • BRV China remains bullish on the long-term prospects of key frontier areas such as AI, robotics, new energy solutions and biotechnology (powered by innovative algorithms).
  • Unlike internet services like mobile apps and e-commerce services that are specifically designed for a geographical region, deep technologies possess substantial business development potential with increasing demand in the global market that will lead to an expected rise in demand for deep technology talent.
  • BRV China believes there's significant long-term potential in the global market with investment flows into the region expected to bounce back following global economic recovery in the coming years.
  • With great changes unseen in a generation will come greater opportunities. Venture capitalists, entrepreneurs and startups were called on to re-evaluate the economic cycle and establish long-term plans so they are ready to "surf the wave" upon eventual recovery in the near-term.

Having first-mover advantages in deep technology and a strong track record across market cycles, BRV China shared its experiences on the opportunities and challenges faced by early-stage startups in areas such as accessing financing solutions and commercialization of technologies ultimately helping promising companies be fully prepared for the many hurdles they face on their growth journey.

"We continue to witness a rapid transition towards a digitalized economy that was accelerated by the pandemic leading to a gamut of opportunities for start-ups that continues to contribute to the growth of the technology sector," said Jui Tan, Managing Partner of BRV China. "To help Chinese start-ups survive a crisis of such unprecedented magnitude, BRV China has been providing continuous support helping many companies adapt and reconfigure their business models while speeding up their R&D and commercialization processes."

The event also featured guest speakers from startups such as Gaussian Robotics and HPC-AI, two fast growing portfolio companies, who shared their journey to success.

"China has leading competitive advantages in deep technologies such as robotics, new energy, AI infrastructure and applications, consumer technology and semiconductors which are in hot demand across the world," said Terry Zhu, Managing Partner at BRV China. "To go global, it is necessary for startups and entrepreneurs to leverage the country's competitive edge and weigh between political influence from different markets while formulating their plan of development. BRV China will help China start-ups to achieve their goal, seizing development opportunities as they arise due to the digital transformation of supply chains, growth in market size and globally distributed Chinese talents."

"Singapore has a flourishing ecosystem as it has a fertile ground for start-ups which are supported by a forward-looking government, a strong research base and a skilled talent pool. BRV China will leverage its experience and help connect researchers, entrepreneurs and investors in order to build a robust ecosystem for innovation," said Jui Tan.

About BRV China

BlueRun Ventures China (BRV China) is a leading early-stage venture firm in China with offices in Beijing and Shanghai. Having its heritage in Silicon Valley since 1998 and entered China in 2005, BRV China has managed over $2 billion through multiple USD and RMB funds, with over $1 billion cash distributions. BRV China focuses on investing in entrepreneurs who create a sustainable impact through technological innovations across enterprise services, transportation and smart machine, digital healthcare, and consumer technology sectors in China. The firm has invested in more than 150 portfolio companies, including Li Auto (NASDAQ: LI), QingCloud (688316.SH), WaterDrop (NYSE: WDH), Energy Monster (NASDAQ: EM), Mogujie/Meilishuo (NYSE: MOGU), Qudian (NYSE: QD), Ganji/58.com, PPTV, Guazi, Meishubao, Nanyan, Shanzhen, Gaussian Robotics, Yi Auto, Pinecone, etc. The firm has been recognized as the "No.1 Early-Stage Investment Firm" in China by Zero2IPO and ChinaVenture, and "Consistent Performing Venture Capital Fund Manager" by Preqin. For further information, please visit https://www.brv.com.cn/en/.

View original content to download multimedia:https://www.prnewswire.com/news-releases/brv-china-holds-singapore-explorer-day-at-smu-301636758.html

SOURCE BRV China

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