“There Is No Alternative.”
The title seemed appropriate as a nod to the new Mad Max movie and an observation on the amount of people that apparently have an insatiable appetite to watch cats doing cat things on You Tube!
The whole feline obsession is a mystery (I’m obviously non-plussed as to why Badgers aren’t more popular) so this blog will aim to raise some questions and postulate some answers to things I do understand, at least a little better.
Actually before all that a noteworthy event occurred on Friday when Nicola met her hero and major rock god, Brandon Flowers, lead singer of The Killers; it was a thing. George by coincidence is in the midst of interviewing musicians and bands for a series of articles he is writing so there is a small chance we will change our name to NME Consultants (Nicola’s Music Enterprises).
What’s hot, what’s not?
1. European stock markets
5. Financial stocks (banks, insurance companies)
6. Some Commodities including oil
2. Utilities Stocks
4. Consumer staples stocks
The keys to current markets are:
Who’s providing the cheap Central Bank money?
The three central banks with full QE programmes in operation are Europe, Japan and by slightly different means China, hence their strong equity markets. Investors are really just rerunning the successful playbook from when the U.S. had QE.
What’s going to change next?
If interest rates are going to rise then a lot of companies (such as utilities and consumer staple) will be detrimentally impacted from higher debt costs and consumers having less disposable income. This loss of attraction is compounded by the high multiples the defensive stocks have enjoyed, as investors feasted on their high dividends in times of low rates.
Conversely the Financials which have suffered for the opposite reason will (going forward) benefit from rising rates as their profits in part grow as the spread on the NIM (net interest margin) widens. This is the difference in the rate of interest they pay on deposits and charge on loans. This spread has been painfully slim with the hyper low base rates and the increase in profitability that will inevitably come from rate normalisation (most likely in the U.S. first) will be significant, hence their stock prices are now rising in anticipation.
The rise in oil and sterling is a recovery trade from oversold positions due to election fears being removed and the reversal of the downward pressure in the oil price. The two areas of the market that experience sometimes overwhelming short term gyrations due to fund flow and momentum are currencies and commodities, both are highly speculative and very unpredictable.
We’ve said this before but it bears repeating, in a world awash with money from QE and very low interest rates giving real negative returns, cash will be pushed into risk assets, such as property but the main beneficiary will be equities because it’s the only market that has sufficient volume and liquidity.
Put simply “There Is No Alternative.”
So until something changes (QE stops, rates around the world rise or if there is a serious exogenous shock event) stock markets will in all probability keep rising.
NOTE: This is written in a personal capacity and reflects the view of the author. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.