Another month gone and, to be fair, not too bad a one in most peoples’ books. Despite a soft day on Wall Street which saw the Dow fall by 1.17% and the S&P by 0.92%, both indices are still in positive territory for the month.
Before today’s opening, month-to-date performance in Europe looks even smarter with the FTSE up by 2.39%, the DAX by 3.57% and the CAC by 3.93%. Japan was out today but even after yesterday’s post-BoJ meeting rout the Nikkei will close the first month of the new financial year down by just 0.55%.
As the US earnings season draws to a close, all the talk is of the generally poor results but I can’t see that reflected in stock prices. There seems to be a real disconnect between where equity markets are trading and what economists are forecasting. There is no doubt that a significant part of the equity markets’ performance is still being driven by share buy backs funded by ever cheaper debt. Gearing up a balance sheet in order to prop up the stock price is cheap and although it satisfies index chasers, it does little to tie stock markets to the real world.
Sage stuffing
That brings me neatly to Omaha, Nebraska. This weekend, the Buffett faithful will be descending on the small place in the middle of nowhere for the 51st shareholder meeting of Berkshire Hathaway.
Sure, during that period the now 85-year-old Warren Buffett, the Oracle of Omaha, has made more than just the odd mistake but in all he has not done too badly. US$1,000 invested with the young Buffett in 1965 would today, with dividends reinvested, be worth US$ 15.3 million following compounded growth of 20.8%. The same money invested in the S&P would be, so we’re told, US$112,341. In reality, the difference is probably greater because Berkshire’s share price has all costs included whereas the cost of switching in and out of stocks that enter and exit the index would most probably have chewed up even more of the performance.
In all, this has not been a great week with Apple’s big miss and then, yesterday, Carl Icahn’s admission that he has sold out of Apple and is now flat. He did of course make all the right noises about loving the Apple management’s strategy after having locked in a capital gain of some US$2 billion but he was on the same page I’m on when identifying that the company’s prospects in China were overvalued. The stock analysts, however, are still all stuck with their bullish ratings. I alluded to this in my initial opinion on Apple’s results and received the following from the head of equities at a London investment firm:
“50 analysts on Bloomy covering Apple. 44 buys and 2 sells. Page ANR. I am sure you know this. The only thing that seems to have changed is their price target.
I learnt when I was a sellside analyst that if you want to p.ss off your clients put a sell on a stock they own – they probably own about 50 and love nearly all of them. A sell on a position is the last thing they want to hear, unless they are short already. On top of that, a sellsider had to consider access to the company itself and deal with all the well-known internal investment bank pressures from his colleagues. Therefore many sellsiders have a default Buy on the big benchmark stocks and very few would ever consider an outright sell. Those 2 sells on Apple are from small firms that I guess have nothing to lose.”
And that is from the horse’s mouth.
The news that Icahn is out of Apple came in a CNBC interview in which he also expressed his concern that the limits of monetary policy have been reached and that fiscal policy needs to take over. Low rates do not encourage consumption but simply scare those with money in their pocket to shift it to under the mattress as fear over the paltry returns on their savings takes hold. There is nothing new in that. Monetary policy can act as nothing more than the starter motor; the driving engine has to be fiscal policy. Try to tell that to the televised Punch and Judy show which is masquerading as a campaign for the chance to get a shot the presidency.
Divorce
And, while on the subject of Punch and Judy shows, I read that the EU would insist on “swift divorce” before forging a new relationship, which would take many years, according to a Reuters report quoting EU sources. Has some impressionable idiot with no original thought been listening to that lame duck American golf enthusiast again? The Brits might look to many like a bunch of inebriated louts, draped in tattoos with shaven heads who wander around Spanish and Greek bars in three-quarter length shorts covered in useless pockets, wearing replica football shirts and in flip-flops but they are also a people which dug their heels in when being pushed around in 1940 by a seemingly irresistible mainland European force, and gave a universally recognisable two-finger salute and fought back like lions.
I wonder what the “EU source” in question would have made of the madman who took a few ships and sailed against the Spanish Armada in 1588? I suppose, unlike Bluecher, he would not have turned his previously badly defeated army at Wavre on June 18 1815 and marched it back towards Waterloo because he would not have trusted Wellington to fight. Does he not wonder how it came about that English is the dominant world language and not French or German? Never underestimate that drunken and disorderly rabble drinking warm beer and sitting on a cold, wet and windy rock in the eastern Atlantic.
Alas, it is that time of the week again and all that remains is for me to wish you and yours a happy and peaceful weekend. One look at the weather forecast and I have to conclude that this can be nothing other than a bank holiday weekend. That might feel a bit grim – at least heating oil is still cheap - but spare a thought for the poor French for whom two successive public holidays, May 1 and May 8 (Labour Day and LiberationDay) fall on a Sunday. No wonder London is France’s sixth largest city. Bon weekend, mes amis.