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Blain: There Are Always Consequences

Blain: There Are Always Consequences

Authored by Bill Blain via MorningPorridge.com,

“My wallet is like an onion, opening it makes me cry…”

Central Banks are playing the “lower for longer” interest rate card to reassure markets…

Published

3 years ago

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Blain: There Are Always Consequences

Authored by Bill Blain via MorningPorridge.com,

“My wallet is like an onion, opening it makes me cry…”

Central Banks are playing the “lower for longer” interest rate card to reassure markets on growth. There are always consequences of such actions – ranging from bubbles, delusion and fraud. Eventually consequences trigger change, and reassessment – which is driving the rotation from Hope as a Strategy Tech into Fundamental stocks – Autos are a good example.

Lots going on in Markets. The Fed Dove fluttered its wings y’day. The BoE speaks today.

What do they confirm: lower rates for longer whatever inflation spike they expect will “briefly” transit markets. The central banks are telling us “these are not the droids” we are looking for when it comes to the perceived inflation threat. Their policies aim to maintain the illusion create stability and confidence in the current lower for longer environment to facilitate recovery and stronger growth post pandemic. Yay!

In practice, the best laid plans of mice and men oft go awry.

There will be consequences. Central Banks will continue the great interest-rate repression. They are betting strong recovery,(the Fed now expects 6.5% growth), and jobs will stabilise the economy and create a base in the next few years. Keeping rates artificially low will enable it – they hope.

On the other hand… They are playing with fire.

We have seen since 2012 that ultra-low rates distort markets. They have fuelled a series of successive record-breaking financial asset bubbles. They have unsubtly broken free market capitalism by enabling struggling companies to weather impossible debt burdens, stopping the Darwinian process by which nimbler new companies surpass lumbering dinosaurs. Easy monetary policies have fuelled the mass delusion it’s easy to make lots and lots of money in casino markets by simply putting all the chips on the new new thing that might just change the world…

If I was just a trader, I’d play that market. All these distortions matter not a jot. Stocks are going up, and fewer people are panicking about a bond meltdown, so what’s not to like? (US readers: Rhetorical Question.)

But…. I am a strategist. I am doomed to sit in the corner, and Cassandra-like warn markets there will be consequences. Consequences are what matters. Consequences are unavoidable…

But the market sun is shining today… so enjoy. Enjoy it while you can…

Rule One of the consequences game is that consequences are never the ones you expect. While the whole market is focused on the insane risks being prettily wrapped up in volatile SPACs, or gorging on the deluge of new junk debt hitting markets, or trying to predict the behaviour of crowds in meme-stocks, its usually somewhere else, somewhere we aren’t looking where the cracks first appear that crash markets.

It’s a similar process in market regulation. The Global Financial Crisis 2007-2031 began in over-leverage which nearly tumbled the financial system edifice as Lehman crashed and burned. The result were new rules to contain leverage, and capital weightings to contain speculative trading. The seeds were sown. The regulators set rules to avoid the last financial crisis, which inadvertently create the next… which I guess is going to be accompanied by chronic illiquidity across all sectors. Wait and see if I am right.

Or maybe it will be unfolding financial scandal?

When interest rates offer such low returns, Investment Managers are more susceptible to deals promising higher returns for apparently similar risk – maybe compromising a bit on liquidity to juice-up their portfolio returns. As a result they buy simple seeming, but financially complex deals.

The supply-chain finance deals packaged by Greensill are a good example of what appears to be simple predictable risk financing. At least 2 large real-money investors I know bought into the Greensill deals – attracted by the huge returns they offered. But anything simple offering high returns seldom is.

As Credit Suisse fires its head of Asset Management and suspends bonuses, and Gupta’s Liberty Global heads to the wall, I’m fascinated in what will be the next thing to emerge from the Greensill collapse? I’m intrigued to know what Morgan Stanley – which sold the initial Lochaber hydro/smelter project bonds to GAM and M&G thought it was selling from Greensill? What DD did they do on the deals to ensure assets were correctly recorded and pledged?

I understand the Lochaber deal was refinanced in 2019 – even as an internal investigation at GAM on the earlier purchase was ongoing. I’m interested in Greensill funding a €2.25 bln “future receivables” facility with Credit Suisse for its €750mm acquisition of ArecelorMittal’s French steel businesses – also in 2019, just around the same time the politically sensitive bonds were refunded. As Private Eye might ask, I wonder if they were in any way connected?

Maybe David Cameron, who was promised 1% of the firm, apparently, could shed some light on the questions, but he isn’t answering his phone to questions from the FT.

Rotation

Looking into the detail of markets, the rotation from Tech-driven “expectation and hope” stocks into Fundamental value stocks continues apace. Hope is never a good investment strategy – as the legions of meme stock investors seem to be finding.

It’s almost exactly a year since the great market Covid crash of March 2020. It’s interesting to see who the winners of the subsequent rally have been. As we all know it was initially the Hope stocks, the Tech names we saw benefitting most from global lockdown and the new working from home era. Pre-covid theme stocks from airlines, cruise, hospitality, and retail were crushed. As we’ve moved through the Covid cycle the market’s anticipated recovery and rising returns as conventional stocks reopen, and figured high expectations of other Covid-play stocks were probably exaggerated.

But we are also seeing a more sober analysis of future value – many taking narrative themes about just how the global economy will change and look in 10, 20, and 30 years. How will existing sectors develop, and how will new ones arise. One thing I can share: of the top global corporates that were around when I started in markets in 1985 – very few are around today. Surprisingly, many that are, are Autos.

Sector life cycles are fascinating. They might start with a sudden disruption, followed by a burst of innovation, prophets proclaiming the new sector, rising adoption, increasing competition, maturity and the finally the next big thing. The Auto sector is a great example of the sector life cycle in action.

VW is now Germany’s most valuable company. Investors have worked out it make’s darn fine cars, and makes a significant margin on each one it sells. And it sells lots of them. Over the past year, VW stock price is up 145% – not bad for a dull, stodgy old company. VW’s market cap is now $137 bln, it makes around 10 mm cars per annum, and its GP per car is around 19%.

What’s interesting is that investors have pushed up VW in the past year because they now get that a well-run firm that sells lots of cars at a profit, might well be worth more than a car company that doesn’t sell very many cars and makes zero margin on the ones it does. Doh! Telsa’s market cap is $670 bln, up 720% since March 2020, it sells 500,ooo cars per annum and has not yet sold a car at a profit (it makes its tiny little profits from regulatory sales.)

What happens next will illustrate the shift from Tech stocks to fundamentals. Does VW rise or does Tesla fall?

VW, and the other German car makers are committed to Electric Vehicles, and have announced plans for new batteries and models – the theme of old autos evolving, and their ability to compete with upstarts like Tesla is emerging as new market narrative. Of course, Tesla has leadership in areas like autonomous driving and isn’t really a car company, but an energy firm. And it’s led by a Technoking rather than a dull, boring, predicable CEO in a suit. Therefore Tesla must be a better company. (US readers: Sarcasm alert!)

Believe what you want to believe. The Germans are out there doing big multi-year deals with battery companies, buying off-the-shelf autonomous drive systems, and integrating them into their new products lines… which day-by-day, produce better and better EVs.

But careful before you place your chips on either Tesla or VW for the future of the auto-sector… Maybe we won’t need cars at all by 2030? Maybe we’ll just be hopping into Uber’s fleet of autonomous EVs or hailing a flying taxi? Or maybe not.

(For the record, I’ve given up trying to buy a new Range Rover hybrid – after 30 years owing multiople new Discoveries or Range Rovers apparently I don’t qualify for a customer loyalty discount… so BMW here we come…)

Meanwhile.. back in Yoorp…

In Europe… I am the only person who thinks Ursula von der Leyen is in the deep end of the pool and doesn’t know how to swim? Her escalation of the vaccine wars y’day with threats to cut off UK supplies was most unhelpful. The BBC has added to the mood of mild panic in the UK reporting that 40 year olds wont be able to book their jobs in April because of suddenly scarce supplies, while the reality is the cohorts that got the injections in Jan and Fed will now be getting their second doze. The number of new jabs will fall, while second jabs rise.

Tyler Durden Thu, 03/18/2021 - 09:33

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Analyst reviews Apple stock price target amid challenges

Here’s what could happen to Apple shares next.

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13 hours ago

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March 12, 2024

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They said it was bound to happen.

It was Jan. 11, 2024 when software giant Microsoft  (MSFT)  briefly passed Apple  (AAPL)  as the most valuable company in the world.

Microsoft's stock closed 0.5% higher, giving it a market valuation of $2.859 trillion. 

It rose as much as 2% during the session and the company was briefly worth $2.903 trillion. Apple closed 0.3% lower, giving the company a market capitalization of $2.886 trillion. 

"It was inevitable that Microsoft would overtake Apple since Microsoft is growing faster and has more to benefit from the generative AI revolution," D.A. Davidson analyst Gil Luria said at the time, according to Reuters.

The two tech titans have jostled for top spot over the years and Microsoft was ahead at last check, with a market cap of $3.085 trillion, compared with Apple's value of $2.684 trillion.

Analysts noted that Apple had been dealing with weakening demand, including for the iPhone, the company’s main source of revenue. 

Demand in China, a major market, has slumped as the country's economy makes a slow recovery from the pandemic and competition from Huawei.

Sales in China of Apple's iPhone fell by 24% in the first six weeks of 2024 compared with a year earlier, according to research firm Counterpoint, as the company contended with stiff competition from a resurgent Huawei "while getting squeezed in the middle on aggressive pricing from the likes of OPPO, vivo and Xiaomi," said senior Analyst Mengmeng Zhang.

“Although the iPhone 15 is a great device, it has no significant upgrades from the previous version, so consumers feel fine holding on to the older-generation iPhones for now," he said.

A man scrolling through Netflix on an Apple iPad Pro. Photo by Phil Barker/Future Publishing via Getty Images.

Future Publishing/Getty Images

Big plans for China

Counterpoint said that the first six weeks of 2023 saw abnormally high numbers with significant unit sales being deferred from December 2022 due to production issues.

Apple is planning to open its eighth store in Shanghai – and its 47th across China – on March 21.

Related: Tech News Now: OpenAI says Musk contract 'never existed', Xiaomi's EV, and more

The company also plans to expand its research centre in Shanghai to support all of its product lines and open a new lab in southern tech hub Shenzhen later this year, according to the South China Morning Post.

Meanwhile, over in Europe, Apple announced changes to comply with the European Union's Digital Markets Act (DMA), which went into effect last week, Reuters reported on March 12.

Beginning this spring, software developers operating in Europe will be able to distribute apps to EU customers directly from their own websites instead of through the App Store.

"To reflect the DMA’s changes, users in the EU can install apps from alternative app marketplaces in iOS 17.4 and later," Apple said on its website, referring to the software platform that runs iPhones and iPads. 

"Users will be able to download an alternative marketplace app from the marketplace developer’s website," the company said.

Apple has also said it will appeal a $2 billion EU antitrust fine for thwarting competition from Spotify  (SPOT)  and other music streaming rivals via restrictions on the App Store.

The company's shares have suffered amid all this upheaval, but some analysts still see good things in Apple's future.

Bank of America Securities confirmed its positive stance on Apple, maintaining a buy rating with a steady price target of $225, according to Investing.com. 

The firm's analysis highlighted Apple's pricing strategy evolution since the introduction of the first iPhone in 2007, with initial prices set at $499 for the 4GB model and $599 for the 8GB model.

BofA said that Apple has consistently launched new iPhone models, including the Pro/Pro Max versions, to target the premium market. 

Analyst says Apple selloff 'overdone'

Concurrently, prices for previous models are typically reduced by about $100 with each new release. 

This strategy, coupled with installment plans from Apple and carriers, has contributed to the iPhone's installed base reaching a record 1.2 billion in 2023, the firm said.

More Tech Stocks:

Apple has effectively shifted its sales mix toward higher-value units despite experiencing slower unit sales, BofA said.

This trend is expected to persist and could help mitigate potential unit sales weaknesses, particularly in China. 

BofA also noted Apple's dominance in the high-end market, maintaining a market share of over 90% in the $1,000 and above price band for the past three years.

The firm also cited the anticipation of a multi-year iPhone cycle propelled by next-generation AI technology, robust services growth, and the potential for margin expansion.

On Monday, Evercore ISI analysts said they believed that the sell-off in the iPhone maker’s shares may be “overdone.”

The firm said that investors' growing preference for AI-focused stocks like Nvidia  (NVDA)  has led to a reallocation of funds away from Apple. 

In addition, Evercore said concerns over weakening demand in China, where Apple may be losing market share in the smartphone segment, have affected investor sentiment.

And then ongoing regulatory issues continue to have an impact on investor confidence in the world's second-biggest company.

“We think the sell-off is rather overdone, while we suspect there is strong valuation support at current levels to down 10%, there are three distinct drivers that could unlock upside on the stock from here – a) Cap allocation, b) AI inferencing, and c) Risk-off/defensive shift," the firm said in a research note.

Related: Veteran fund manager picks favorite stocks for 2024

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Major typhoid fever surveillance study in sub-Saharan Africa indicates need for the introduction of typhoid conjugate vaccines in endemic countries

There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high…

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March 12, 2024

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There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high burden combined with the threat of typhoid strains resistant to antibiotic treatment calls for stronger prevention strategies, including the use and implementation of typhoid conjugate vaccines (TCVs) in endemic settings along with improvements in access to safe water, sanitation, and hygiene.

Credit: IVI

There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high burden combined with the threat of typhoid strains resistant to antibiotic treatment calls for stronger prevention strategies, including the use and implementation of typhoid conjugate vaccines (TCVs) in endemic settings along with improvements in access to safe water, sanitation, and hygiene.

 

The findings from this 4-year study, the Severe Typhoid in Africa (SETA) program, offers new typhoid fever burden estimates from six countries: Burkina Faso, Democratic Republic of the Congo (DRC), Ethiopia, Ghana, Madagascar, and Nigeria, with four countries recording more than 100 cases for every 100,000 person-years of observation, which is considered a high burden. The highest incidence of typhoid was found in DRC with 315 cases per 100,000 people while children between 2-14 years of age were shown to be at highest risk across all 25 study sites.

 

There are an estimated 12.5 to 16.3 million cases of typhoid every year with 140,000 deaths. However, with generic symptoms such as fever, fatigue, and abdominal pain, and the need for blood culture sampling to make a definitive diagnosis, it is difficult for governments to capture the true burden of typhoid in their countries.

 

“Our goal through SETA was to address these gaps in typhoid disease burden data,” said lead author Dr. Florian Marks, Deputy Director General of the International Vaccine Institute (IVI). “Our estimates indicate that introduction of TCV in endemic settings would go to lengths in protecting communities, especially school-aged children, against this potentially deadly—but preventable—disease.”

 

In addition to disease incidence, this study also showed that the emergence of antimicrobial resistance (AMR) in Salmonella Typhi, the bacteria that causes typhoid fever, has led to more reliance beyond the traditional first line of antibiotic treatment. If left untreated, severe cases of the disease can lead to intestinal perforation and even death. This suggests that prevention through vaccination may play a critical role in not only protecting against typhoid fever but reducing the spread of drug-resistant strains of the bacteria.

 

There are two TCVs prequalified by the World Health Organization (WHO) and available through Gavi, the Vaccine Alliance. In February 2024, IVI and SK bioscience announced that a third TCV, SKYTyphoid™, also achieved WHO PQ, paving the way for public procurement and increasing the global supply.

 

Alongside the SETA disease burden study, IVI has been working with colleagues in three African countries to show the real-world impact of TCV vaccination. These studies include a cluster-randomized trial in Agogo, Ghana and two effectiveness studies following mass vaccination in Kisantu, DRC and Imerintsiatosika, Madagascar.

 

Dr. Birkneh Tilahun Tadesse, Associate Director General at IVI and Head of the Real-World Evidence Department, explains, “Through these vaccine effectiveness studies, we aim to show the full public health value of TCV in settings that are directly impacted by a high burden of typhoid fever.” He adds, “Our final objective of course is to eliminate typhoid or to at least reduce the burden to low incidence levels, and that’s what we are attempting in Fiji with an island-wide vaccination campaign.”

 

As more countries in typhoid endemic countries, namely in sub-Saharan Africa and South Asia, consider TCV in national immunization programs, these data will help inform evidence-based policy decisions around typhoid prevention and control.

 

###

 

About the International Vaccine Institute (IVI)
The International Vaccine Institute (IVI) is a non-profit international organization established in 1997 at the initiative of the United Nations Development Programme with a mission to discover, develop, and deliver safe, effective, and affordable vaccines for global health.

IVI’s current portfolio includes vaccines at all stages of pre-clinical and clinical development for infectious diseases that disproportionately affect low- and middle-income countries, such as cholera, typhoid, chikungunya, shigella, salmonella, schistosomiasis, hepatitis E, HPV, COVID-19, and more. IVI developed the world’s first low-cost oral cholera vaccine, pre-qualified by the World Health Organization (WHO) and developed a new-generation typhoid conjugate vaccine that is recently pre-qualified by WHO.

IVI is headquartered in Seoul, Republic of Korea with a Europe Regional Office in Sweden, a Country Office in Austria, and Collaborating Centers in Ghana, Ethiopia, and Madagascar. 39 countries and the WHO are members of IVI, and the governments of the Republic of Korea, Sweden, India, Finland, and Thailand provide state funding. For more information, please visit https://www.ivi.int.

 

CONTACT

Aerie Em, Global Communications & Advocacy Manager
+82 2 881 1386 | aerie.em@ivi.int

Journal

The Lancet Global Health

Method of Research

Observational study

Subject of Research

People

Article Title

Incidence of typhoid fever in Burkina Faso, Democratic Republic of the Congo, Ethiopia, Ghana, Madagascar, and Nigeria (the Severe Typhoid in Africa programme): a population-based study

Article Publication Date

12-Mar-2024

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US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever… And Debt Explodes

US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever… And Debt Explodes

Earlier today, CNBC’s…

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US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever... And Debt Explodes

Earlier today, CNBC's Brian Sullivan took a horse dose of Red Pills when, about six months after our readers, he learned that the US is issuing $1 trillion in debt every 100 days, which prompted him to rage tweet, (or rageX, not sure what the proper term is here) the following:

We’ve added 60% to national debt since 2018. Germany - a country with major economic woes - added ‘just’ 32%.   

Maybe it will never matter.   Maybe MMT is real.   Maybe we just cancel or inflate it out. Maybe career real estate borrowers or career politicians aren’t the answer.

I have no idea.  Only time will tell.   But it’s going to be fascinating to watch it play out.

He is right: it will be fascinating, and the latest budget deficit data simply confirmed that the day of reckoning will come very soon, certainly sooner than the two years that One River's Eric Peters predicted this weekend for the coming "US debt sustainability crisis."

According to the US Treasury, in February, the US collected $271 billion in various tax receipts, and spent $567 billion, more than double what it collected.

The two charts below show the divergence in US tax receipts which have flatlined (on a trailing 6M basis) since the covid pandemic in 2020 (with occasional stimmy-driven surges)...

... and spending which is about 50% higher compared to where it was in 2020.

The end result is that in February, the budget deficit rose to $296.3 billion, up 12.9% from a year prior, and the second highest February deficit on record.

And the punchline: on a cumulative basis, the budget deficit in fiscal 2024 which began on October 1, 2023 is now $828 billion, the second largest cumulative deficit through February on record, surpassed only by the peak covid year of 2021.

But wait there's more: because in a world where the US is spending more than twice what it is collecting, the endgame is clear: debt collapse, and while it won't be tomorrow, or the week after, it is coming... and it's also why the US is now selling $1 trillion in debt every 100 days just to keep operating (and absorbing all those millions of illegal immigrants who will keep voting democrat to preserve the socialist system of the US, so beloved by the Soros clan).

And it gets even worse, because we are now in the ponzi finance stage of the Minsky cycle, with total interest on the debt annualizing well above $1 trillion, and rising every day

... having already surpassed total US defense spending and soon to surpass total health spending and, finally all social security spending, the largest spending category of all, which means that US debt will now rise exponentially higher until the inevitable moment when the US dollar loses its reserve status and it all comes crashing down.

We conclude with another observation by CNBC's Brian Sullivan, who quotes an email by a DC strategist...

.. which lays out the proposed Biden budget as follows:

The budget deficit will growth another $16 TRILLION over next 10 years. Thats *with* the proposed massive tax hikes.

Without them the deficit will grow $19 trillion.

That's why you will hear the "deficit is being reduced by $3 trillion" over the decade.

No family budget or business could exist with this kind of math.

Of course, in the long run, neither can the US... and since neither party will ever cut the spending which everyone by now is so addicted to, the best anyone can do is start planning for the endgame.

Tyler Durden Tue, 03/12/2024 - 18:40

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