Keeping it long
After coming off a rare 10-day unbroken winning streak on the S&P and having just gone through 100 days without a single day move of more than 1%, the S&P traded down by all of three points on Wednesday, only to rally back and make a new record high of 2,767.56 on Thursday.
The end of the world as we know it is out there somewhere although it would appear that speculation that it might have been due on Wall Street this week would seem somewhat premature. JP Morgan kicks off the banks’ 2017 full-year earnings reporting today along with Wells Fargo, and the rest will follow, in short order, next week.
The problem is that, with the Trump tax cuts kicking in this year, the current picture will give little guidance to the future. Everybody seems cool that future post-tax earnings will be better and that therefore stock valuations, as rich as they might look at the moment, may appear in a very different light in the future. The whole repatriation thing, a central tenet of Trump’s desire to reform the corporate tax regime, is a massive imponderable so all forecasts as to what financial 2018 and fiscal 2018/2019 will look like are educated guesses at best and more likely not much more than a game of pinning the tail on the donkey. I suspect that the notes to the accounts will be longer and more opaque than usual and that, if properly dissected, they too will be swamped with question marks.
How far an extra trillion dollars of Federal fiscal deficit will go towards making America great again I cannot say although the president’s announcement that he will not come to London to cut the ribbon on the sparkly new US embassy complex at Nine Elms certainly isn’t reputation-enhancing. He won’t come because he thinks the Grosvenor Square site was sold off too cheaply and that it was a bad deal, so he tells us. That’s not fake news, it’s simply rubbish. I digress.
Forecasting future earnings under the revised corporate taxation regime can be done but it really is something of a stab in the dark. It does, however, make a mockery of the moans that valuations are stretched. Another great unknown is what effect some of the pay rises – even Walmart is increasing its minimum wage level - and one-off bonuses will have on consumption. Some will surely find its way into the consumption cycle although one-off payments might also be put towards debt reduction. By this time next year we ought to have a clearer picture although that will be rather too late to help with current investment decisions.
Europe also became a more troubled place yesterday with hawkish news out of the ECB that members of the governing council seem to be less averse to early tightening activity than had been generally presumed. At the time of writing the euro at US$1.2060 is within a whisker of its recent high of US$1.2092. The Dax and the Cac didn’t like what they heard and most of the early-year gains were wiped out with the former closing yesterday, no more than 0.15% to the good, year-to-date. That contrasts sharply with the Dow up 4.37% and even the FTSE up 3.5%.
In the background the oil price is rising like a loaf of yeasty bread. It does, however, bear a bit of “fake news” too. Headlines this morning tell us that Brent crude broke through US$70 per barrel in Thursday’s trading. Really? Yes, it did print US$70.05 but on the chart it’s a one off spike that looks like a bit of a fat-finger trade and this morning it’s back below US$69. All the while, WTI is still to be found around US$63.30. I do wish we could see more consistency in reporting. The random switching between the use of Brent and WTI – the spread between the two is currently just under US$6 or close on 10% - makes a mockery of the business news and the featuring of a single spike print as headline news makes no sense at all.
There’s also a heavy raft of data coming out in the US, led by December CPI and retail sales. The consensus is forecasting softish figures after a strong November, which was driven by Black Friday and all that malarkey. Overall, and on the back of a strong start to the year, a quiet session today might be a good thing.
The big news is bitcoin, which went and had a look at levels below US$13,000. It also had another crack at that level in the overnight market. Yes, it has bounced again but any technician will tell you that every proper level has to be tested three times. In other words, if it breaks through US$13,000 again, then it’s heading lower. But what has to be appreciated is that most of this downward move is not being driven by players exiting cryptocurrencies but by moves into other, more flexible and user-friendly cryptos. Not so long ago I likened bitcoin to AOL.com. In the early days of the dotcom boom America On Line was the bellwether, only to crash and burn. Insiders believe that the same fate might be about to befall bitcoin.
I recently came across a paper by a very large European bank that tried to explain to its clients what the crypto thing is about , how it works and what it means. There are also rumours that even Goldman Sachs is preparing to begin actively trading cryptos. All the while the Bank of England, really playing out its reputation as being an old lady, and a grumpy one to boot, still appears to be warning off UK-based banks from offering clearing services to the blockchain community. One might have thought that Mark “the magician” Carney would have worked out that denial is still not and never will be a river in Egypt. Next week the Bitcoin Conference takes place in Miami. All the great and the good of the crypto world will be there and all of us, lovers or haters of cryptos, ought to be listening carefully to what goes on there.
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. This weekend, the second of the new year, is the one on which troubled marriages are most likely to hit the rocks. Having pinned on a smile for the family through the festive season, the cold light of day takes hold again. In my case, seven years ago, we struggled on for another week until January 18. I’m not trying to suggest that this a good time to leave the other half but it is a good time to be there for friends who might just need your support. Experience tells me that there is nothing a lonely individual needs more than a patient listener. Let’s face it, the cricket is over and the Winter Olympics and the Six Nations rugby haven’t started yet so there’s really not much else or better to do. Please be there to make a difference, if called upon.