Monthly Archives: April 2017

German Business Climate is Getting Better and Better

The business climate in Germany continues to improve. This is good for stocks.

Just like the sun warms the ground in spring and lets farmers plant their crops, so too does optimism lead to heightened investment and economic growth. Think of the liquidity provided by the ECB as seeds. Having seeds is great, but you can not make actual use of them if your fields are frozen. It looks like the fields have finally thawed, and the sun (business and consumer confidence) is shining. This is the critical element that the European economy has been lacking.

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Merci Macron!

Three weeks ago we explained our rationale for investing in European banks:

LINK: European Banks

The results of the first round of the French presidential elections sent this trade into high gear.

Here is the chart on the iShares MSCI Europe Financials ETF (+5.77% yesterday):

And here is the chart of UniCredit (UCG IM):

UniCredit rallied 13.77% yesterday. You would have to hold a German Bund for a life-time to receive a that sort of net return.

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This Is Not Just A Trump Rally…

People often fall prey to over-simplifying things.

A poignant example of this tendency is the that market rally since the US presidential elections has been dubbed the “Trump Rally”. This oversimplification does not give credit to the fact that many of the drivers of this current market environment were set in motion before the elections. Here is a list of important charts that evidence this point:

LINK: Market Not All About Trump

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What We Said When The World Changed

What the stock market did today doesn’t matter. But reading about how people
obsessed over what it did on any given day in, say, 1990, is telling. The
stock market is almost 11 times higher today than it was in 1990. So reading
a 1990 article about what a 0.5% decline meant for investors makes you want
to yell, “None of this matters! Just take a long-term view!” That’s one of the
most valuable lessons in investing. And you don’t get it reading today’s newspaper.
You get it — clear as day — from old newspapers.

– Morgan Housel

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OUR MARCH RESULTS

Our weighted average return in March was +0.68% bringing our YTD return to +5.08% (net of all fees).

In March, many of the Trump trades (financials, cyclicals, small caps) got hurt as it turned out that not all Republicans are ready to repeal Obamacare, much less replace it with Trump’s “World’s Greatest Healthcare Plan of 2017” (yes, this was the actual title!).  The failure to pass this new bill cast doubt on just how united the Republican majority actually is, and undermined the market’s confidence in Trump’s ability to push through tax reforms.

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Can a robot do your job?

Not even a week has passed since we wrote about robots and automatization of processes.

Financial Times has come up with a tool that allows to determine which activities of your job can be automated:

Here is a link: Can a robot do your job?

The calculator/tool is constructed based on the data from McKinsey Global Institute. As a large consulting business they usually have wider picture of what actions companies are taking to improve their processes.

Though we should keep in mind that technology is going forward very rapidly. Many more activities and even jobs or roles will be automated in not so distant future. And some jobs won’t be automated, some will go away completely.

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Will Spotify be the next hot IPO?

According to NY Times, Spotify has finally signed agreement with Universal Music Group. It’s world’s biggest record company whose artists include Lady Gaga, U2, Drage. And this has been their biggest obstacle to going public.

Spotify has been valued at more than $8 billion, it has 50 million paying subscribers and 50 million listening for free. Those listening for free have been paying by listening to ads.

We’ll keep an eye on Spotify as recently there are limited number of enticing IPOs.

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Amazon reaches new highs

It seems that Amazon is unstoppable. Of course it isn’t but it may seem so.

There are plenty of articles that help Amazon go even higher, such as:

It’s most ambitions sports deal to date Amazon wins streaming rights to 10 NFL games

Amazon launches Amazon Cash, a way to shop its site without a bank card Link

Also, absence of bad press helps.

We’ve been writing about Amazon for quite some time and perhaps mentioning it too often. It’s been very profitable position for our clients and we’re still bullish.

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European Banks

According to Goldman Sachs, currently 3 themes that make European banks attractive: 1) the potential of rising rates, 2) the valuation gap between US and European banks, and 3) decreasing political risks.

Our opinion coincides with that of Goldman Sachs.

  1. All Signals Point Towards Higher Interest Rates

Recent pickup in Eurozone inflation has alleviated concerns that Europe could be facing the threat of inflation. Prices are rising, as is economic growth.

Here is a chart of European inflation:

Eurostat Eurozon MUICP AllItems YoY Flash estimate NSA (Source: Bloomberg)

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