Sell in May – STAY AWAY PAST St Leger’s Day

We’ve all heard the phrase “Sell in May, Go Away, Come Back on St Leger’s Day”.  Did it work in 2020?  Oh Yes!  But we don’t recommend the returning bit.

FTSE100 chart showing the wisdom of selling in May

The chart shows the steady drift downward of the FTSE 100 since it’s peak of 6484 on 5 June.  This morning the index opened at 5907 and is looking rather soft.

Ah but, the rest of the phrase says we should come back on St Leger’s Day, which was last Saturday?  DON’T DO IT! 

Galileo Chrome winning the St Legers (on the right). Pic from BBC.co.uk

The St Leger’s race at Doncaster was won by Galileo Chrome, but you should take the last minute banning of visitors to the meeting as your omen for the rest of 2020.

At the very best, we see the benchmark back at 6000 next spring, but there is a volume of blood to be spilt in the meantime.  Remember that the FTSE 100 companies tend to be multinationals, exposed to the global economy.  So we should examine what could go wrong and what could go right over the next few months.

Alert readers will recall that our views on Fama’s Efficient Market Hypothesis can be discerned from the article “The Efficient Market Hypothesis is Bunk”  However, it does have a useful shorthand idea that to determine market direction, one has to look for events that surprise or shock the market.  Overlaid on this, readers should remember that the market can be rather short-sighted.  So we all know that there will be a US Presidential election this winter, and further pandemic spikes.  Yet you can bet your bottom dollar that the market will take fright when they happen.  What else could go wrong? All sorts of diplomatic failures, natural disasters – and man-made ones too.  What could go right? Well, er, some people still believe in a Christmas vaccine – perhaps these folks think Santa will magic it out of thin air?  We cannot see an effective vaccine making much difference in the next two years.  Medical knowledge is growing of course, and fatalities will reduce over time, but a big breakthrough just has too many hurdles. (Unlike the St Leger, which doesn’t have any)

So more room for negatives than positives – the market is likely to trip rather than jump.  Our forecast for 6 months today, 20 March 2021, is that Footsie will be at 5800 – but we see opportunities to buy below 5000 between now and Christmas.

Disclaimer: We are just observers of complex and dynamic markets.  Do not take our views seriously!  You must always consult your specialist advisors before making any investments or sales.

PS. We took the advice ourselves and went away in May. This is our first column since St Leger’s Day. Yes thank you, we had a splendid summer!

FTSE To Be Ruled By Fear

The classic drivers of the stockmarket are Fear and Greed. Right now, we are in Fear mode. To be fair, last week it was FOMO – Fear Of Missing Out – as the market bounce continued.

But this was a short term reaction, not a turning point.

FTSE over the last 6 months

The sell off in March was vicious. Once investors woke up to the dangers of the pandemic, pandemonium broke loose. The hedge funds piled into to short positions as everyone else piled out. And so the market overshot and went far too low. The small rebound sine then can be characterised in three ways.

  1. Bargain hunters thinking shares look cheap – on account of them being cheaper than they were. This doesn’t necessarily make them a bargain though.
  2. Hedge funds taking profit by closing out their short positions
  3. The classic dead-cat bounce, very often seen after a large fall. Incidentally, does anyone know if a dead-cat really does bounce if dropped from a great height? We vote that the classic TV programme Mythbusters should be reprised just to test this theory.

Dear reader, please note that none of these reasons refer to the Efficient Market Hypothesis, which we have previously claimed to be bunk. Click here to read why.

We do not believe this is the bottom of the market, nor anywhere near. It seems clear that with unemployment quickly rising to 10% and many firms only carrying on as staggering survivors, it is wishful thinking topped by political sleight-of-hand to think that the economy will just restart where it left off. Thanks for giving us so much of our children’s money, Mr Sunak. Bridging the gap makes sense, but what will we find on the other side? Will this economic viaduct be like the Humber Bridge, leaving Lincolnshire full of optimism, but then finding the other end is in Hull?

The harsh reality is that we are heading for a recession. The economy will take years to return to those heady levels of 2019. All the subsidies in the chancellor’s imagination cannot create a thirst to invest and grow. Nor can it revive dead firms.

If you must play in the market, think of using 1 or 2% of your portfolio as speculative fun. Otherwise, hunker down. This will be a long haul.

This Recession Will Be Huge

Economists like to talk about recessions being V shaped, U shaped or L shaped – based on the graph line depicting the fall and speed of the possible recovery. This recession is going to be pear-shaped!

If you haven’t read the Imperial College Covid-19 Report, I suggest you do so right now. Okay, have you looked at it? The numbers are pretty startling….. 500,000 deaths in UK if we had done nothing, 260,000 deaths on last week’s strategy. So the Government had no choice but to initiate the latest controls, and thankfully Boris was sensible enough to see that.

Scary Imperial College Covid Image

Under the new approach, critical care numbers may be kept within the capacity of the NHS intensive care system. Deaths will be less than 100,000, and may be as low as 20,000.

However, the worrying part of the report was what happens when the controls are relaxed. Under the mitigation approach of last week, the infections shoot back up to the extent that the epidemic has just been delayed.

Under the latest scenario, we have, say, 3 months of lockdown, then normality is resumed for a month. At this point, infections will start to rise again. So after a further month, we go back into lockdown. This made for simplified modelling. What is more likely is that after 2 or 3 months of low infection rates, people become complacent, contacts rise and infections grow again… then there will be a reinforcement of measures. But remember, the models contain lots of assumptions, and could be rather inaccurate. This is not a condemnation of the scientists, just a reflection of an uncertain data they are using.

Ultimately, this is an open-ended procedure. At some point a vaccine will be developed. But it won’t be less than 18 months away. It could be 3 years of close to house-arrest for the whole population.

We have already seen demand for durable goods fall away and car companies suspending production. We will see bankruptcies of manufacturing and service companies, no matter how much Government support is given. The current £350 billion is way too little. And isn’t it a frightening echo of the Boris Brexit Bus with its £350 million? What is it about £350???

Boris’ Brexit Bus – and another £350 sum. What a spooky coincidence

Even public sector employees, isolated from the worst of the economic-epidemic will save rather than spend. The general public, as is usual in times of trouble, will save or pay down debt. The collapse in retail spending will be truly eye-watering. We may never return to our previous societal norms. Another article will comment on forever-changed political structures. Workers may end up in small, closed communities for their own protection.

Apologies for the lack of jokes and puns in this article. It just is not a funny topic.

Brace yourself folks. This is going to be a humdinger of a recession.

Coronavirus Party Required for Granny

We recommend that you should do your utmost to get your Granny infected now!

Old People Partying

The UK Government’s strategy for coronavirus is to resignedly accept that around 80% of people here will catch it. We know that approximately 1% of those infected will die from the disease. This is an awful, terrible number of people.

However, it has been decided that instead of trying to prevent people from becoming infected, the answer is to delay the spread of infection so that the peak is later and more spread out. In this way, the NHS will have more time to prepare for the rise in demand, and the maximum number of intensive care beds needed will be lower, albeit for a longer period.

Looking at the statistics, most people will be infected, and the bulk of those infections will happen over the summer, when the NHS is fully stretched – and then some – trying to cope with the numbers. The last thing you should be doing is to risk catching it at the same time as everyone else.

So the answer is to get the vulnerable infected now, whilst plenty of spaces are available in intensive care. Why wait until the ICU’s are full to bursting and you might be receiving treatment in a corridor? Get in early.

Coronavirus Parties

Did your Mum take you to a chicken-pox party when you were a child, inflicting an unpleasant, itchy disease on you “for your own good”? Well now is your chance for payback. Ship her out of that old-folks’ home and get her into pubs, clubs, football matches, even the Houses of Parliament. This way, she will be infected and treated before the rush!

You read it here first – now get out there and infect the old and vulnerable people in your life!

Iran = World War 3 – NOT! Or At Least, NOT YET!

We all know that the Middle East is a Tinderbox – though I wonder just how many people today would recognise such a thing if it hit them on the forehead?

Tinderbox, from oldandinteresting.com

So once you come round, now you can identify with what you have just been bludgeoned!

How will last night’s reprisals work out? Well it is fair to say that Tehran had to be seen to be doing something, to show the domestic audience and local acolytes that the leaders aren’t cowed by the US gorilla (yep, I mean you-know-who). But their target selection was fairly low level, and the results not even a pin-prick.

Will Trump reply, or just laugh at them? A big man would stand and smile benignly at the small child who is having a paddy. But this is Trump we are talking about. Oh dear!!

Our feel is that he will wait to see if the Iranians try again. If they do something of real economic consequence, then one can expect a hard strike at Tehran. I hope the ayatollahs have a good bunker.

There is some risk to global oil supplies, and successful attacks on Saudi refineries or shipping would provoke a very sharp response from the US. It would be a short erasing of any Iranian production capacity. However, we do not feel that it would lead to a sustained rise in oil prices. Pipelines can be repaired, and US Shalegas drilling is is very elastic to price rises.

Meanwhile, the markets are calm, down by less than 0.5%. We think that is right. The worst thing for Trump right now would be to appear weak to his electorate, or to blink. Our feel is that Tehran is drinking in the last chance saloon, and just ordered another round…….. There is clearly a point at which Trump will be keen to demonstrate to the world that the US economy and US lives are sacrosanct. If the bullets (or missiles) start to fly, then the markets will fall by less than 20% – because everyone, us included, will see very limited global economic consequences, and any falls representing a buying opportunity.

Why did we say “NOT YET”? Where is the real risk here then? If the Russians or the Chinese see an angle for stepping in to control the Middle East, then suddenly it becomes a geo-political play, and then we really are worried!

Have a nice day now!

Don’t Blame the Cows for Global Warming

It is okay, you can start eating again!

Every week it seems that some self-appointed climate fascists are instructing us that we need to stop eating and drinking in order to “save the planet”. As Global Warming has evolved into Climate Change then Extinction Rebellion, ever-more shrill instructions about how we should live our lives are issued, with the threat of dire consequences should we fail to accede to their demands. Is it only me that observes the same tone of dire-threats and moral righteousness that were so prevalent in the CND anti-nuclear armageddon protesters of a generation ago – or indeed the religious zealots of the previous millennia? Their chant was “do as we say, or you’ll burn for an eternity”, which, come to think of it, is pretty much what the anti-western-economies lot are telling us about temperature change.

Beef cattle enjoy the sunshine

Anyway, back to the topic. For a number of years, agriculture has been blamed for a very substantial proportion of UK greenhouse gas emissions, with as much as 25% of the total quoted as being sourced from farming. These numbers are grabbed by vegan enthusiasts to shriek that we all need to stop eating meat or we’ll burn in hell for all eternity. Okay, so maybe I paraphrased them a little, but the point remains.

However, the science they are using is duff. According to Prof Myles Allen of Oxford University Environmental Change Institute, quoted in the Sustainable Food Trust, the picture is much more nuanced. Back in February, we mentioned that the finger points at the methane released by cows. In the approach used by the International Panel on Climate Change, methane is treated as equivalent to carbon dioxide in its greenhouseness (like my new word?) The true picture is that carbon dioxide is chemically stable and stays in the atmosphere for hundreds of years. Meanwhile, methane breaks down rather quickly, and so has a much smaller impact on the atmosphere. The case against cows has been extensively overstated.

Barry Gardiner, not the voice of reason

At a conference organised by the Country Land and Business Association, Labour spokesman Barry Gardiner suggested that British farming should be part of the solution to global warming by producing less food and planting trees instead. To put it mildly, this approach doesn’t pass even the most cursory scrutiny. (Ha that originally I typed “What a moronic idea!” before professionalism got the better of me). Does Mr Gardiner think that the UK population will eat less? All that his madcap scheme would achieve is more food imports. So the food production leads to the same emissions, just somewhere else in the world. Then the food is transported to the UK, with all the emissions entailed. Mr Gardiner’s scheme actually would increase global emissions. We do like the idea of more tree planting, but to claim that replacing UK food production with forests would reduce emissions is just wrong.

Summary

Agriculture is not the huge emitter of greenhouse gases that the hysterical brigade would have you think. Carry on eating healthy nutritious meat and dairy products, comfortable in the knowledge that locally sourced food has low airmiles and supports high-quality, high-welfare British farming.

Brexit Election Double Bluff Could Avoid No-Deal

Cripes, doesn’t Boris love poking the hornets’ nest with a sharp stick?

Boris – back on the front foot

The reality of his decision to close this Parliamentary session and arrange a Queen’s Speech to initiate a new Parliament is relatively small. Instead of Parliament having a recess for three and a half weeks over the party conference season, the break is five weeks. However, it has acted as a lightning rod for all of the pent up frustration and anger of the Remainers. Suddenly, they can see their case is lost. It was lost before, but now they can no longer pretend to themselves that they still have a chance.

Guy Verhofstadt, with name label to prove it

The greatest endorsement came from Guy Verhofstadt, Chief EU Brexit Negotiator, who branded it a ‘sinister development’. Clearly, many in Brussels have been relying on the Remainers to weaken the UK position. The strength of Boris’s move is reflected in their dislike of it.

The Nuclear Option

So now the Remainers have only one option left – win a vote of No Confidence next week and force an election before the end of October. This would be welcomed by the Boris team, as discussed yesterday, who have developed a suite of policies on which to campaign, and have clearly judged that such a poll would be winnable.

Our view is that;-

  1. The Remainers will not be able to win a vote of No Confidence

  2. It is far from clear that Mr Corbyn will even dare to call one (see 1. above)

  3. The EU will have to sit up and realise that the Remainers will not postpone Brexit

  4. The EU needs to avoid blame for No-Deal, and so see a deal as necessary.

 

Suddenly, to us, a No-Deal Brexit seems less likely than it did 24 hours ago.

FTSE Weak Until Christmas – Then Rebounds in the New Year

It’s that time of the month when we take out our crystal ball and forecast where FTSE 100 will be in 6 months time, February 2020.

Stock Prices green for up, but we think down

Before giving away too many of our thoughts, gut-feels and sheer guesses, let’s look at where we are now. Six months ago, in February this year, we thought FTSE would continue the upward trajectory sine the start of 2019, Brexit would have been and gone, and FTSE would be just over 8000. What’s actually happened is that Brexit was postponed and so the UK economy has been left dithering over the summer. Last night it closed at 7148. So we got the direction right. At the end of last month, when it was at 7700, we could have forgiven ourselves a little smugness.

FTSE 100 with date of forecast shown

For the last three months, as the implications of the Brexit delay became apparent, we have been forecasting FTSE up to 7500 in July, and then a retreat to 7200 by November. Well, we got to 7500 in July, but back down to 7200 a little early. Our suggestion last month that the market was riding high but vulnerable to bad news was brought to life by President Trump’s step up of the tariff war with China.

So where to now?

As we noted last month, the global economy looks weak, and the UK could be in a technical recession by Christmas. (See our article last week, A Bleak Midwinter Brexit Recession By Christmas) Our central forecast for Brexit is that it will be a soft No-Deal, in that another Withdrawal Agreement will not be reached, but enough accommodations will be made to keep things ticking over. This outcome will scare the market further.  However, FTSE tends to look 6 months ahead, and by February, it should become clear that the UK economy will be okay, and the world economy could be over its wobble.

So we think the worries of a No Deal will send FTSE down to 6800 by November, but that in the 6 month time horizon of our forecast, we think it will be back to 7200 by Friday 14 Feb 2020

A Bleak-Midwinter Brexit Recession By Christmas

Oo-er, suddenly the UK economy ain’t looking so good!

The news media are full of speculation about Brexit, and not many of the stories are looking forward to how wonderful the country will be once/if Brexit happens. We can expect more of the same for the next twelve weeks until Halloween.

Are we heading for No-Deal?

At the moment, both sides are digging in, trying to create a tough stance for the benefit of their populations (I hesitate to use the word electors when we are discussing the EU, but you know what I mean). Behind the scenes, it can be assumed that the diplomats and civil servants will see themselves as the grown-ups in the room, and thus be at least looking for common ground.

However, it seems unlikely that a comprehensive new Withdrawal Agreement will be crafted by October. But we can expect enough co-operation to keep the world turning.

So what’s the problem?

The problem is that investment is collapsing. The worst thing for businesses in uncertainty. Life has enough risks when it comes to business investment, without an unseeable future being only 12 weeks away. Similarly, house-buying and car buying are likely to miss out on their usual autumn surges this year.

And after Brexit day, will there suddenly be clarity and light? Nope. There will be hysteria in the media for a few weeks as every little shortage and business malady is blamed on you-know-what. And the effect of this – more hand-sitting and less spending.

What else is happening?

Leader of the Free World

The US is starting to suffer from Mr Trump’s tariffs, to the extent that Jerome Powell has cut interest rates despite full employment. Meanwhile, China is suffering a marked slowdown from the trade war. This has now spread to Europe, which is also teetering on the edge of recession.

Conclusion

The UK is heading for recession – and it is difficult to see when it could end. Domestically, we’ll probably pull out next spring…. but that depends on what the rest of the global economy does. If things keep softening elsewhere, it could be a big one!

PS. The slowdown in Q2 announced today was no surprise, given the stockpiling in Q1 for the original Brexit day, and the factory shutdowns brought forward to April in case of Brexit delays.

Theresa the Timid

PPS. The coming recession will be a direct result of Mrs May’s and Parliament’s timidity over Brexit. If they had gone ahead on 29 March, we’d be pulling out of it by now. The delay to October has just increased the uncertainty and halted the economy for 7 months, tipping us into a recession we need never have had.

Whaley Bridge Dam Lies, Statistics and Climate Change

The drama in Whaley Bridge over the weakened Toddbrook Reservoir Dam has captivated news audiences. One struggles to imagine how stressful it must be for owners and occupiers forced to leave their homes without notice.

Toddbrook Reservoir

However, this crisis is NOT the result of Global Warming/Climate Change/Extinction Rebellion or whatever it is called this week.

The High Peak area of Derbyshire had some quite heavy rain showers last week. But thunderstorms are no more proof of Climate Change than they are of the existence of fairies. The dam was not overwhelmed by a biblical downpour.

As an aside, if by biblical rainfall, are we talking about total flooding which requires an ark to be built? One can only think that comparing a bit of a summer cloudburst to the flooding of all the land in the world as perhaps over-exaggerating.

Anyway, back to the dam. What happened was that there was heavy rain, and the water rose enough to flood over the spillway, as it was intended to do according to the 1831 construction, and has done so many times before.

What was different was that the sealing of the concrete slabs on the spillway failed, allowing the water to run underneath the hard surface, and wash away material that formed part of the structure of the dam.

BAD MAINTENANCE!

The weakening of the dam was nothing to do with climate change, it was simply the result of bad maintenance of the spillway. One has to wonder why the BBC was so convinced in its news programmes that this POTENTIAL CATASTROPHE could be attributed to Climate Change?

Not once was it suggested that it is the Canal and River Trust – owners of the reservoir – who are responsible for lack of maintenance.

Unfortunately, by falsely linking every weather-related event to Climate Change, the BBC has become labelled as creating another Project Fear, this time about Climate Change. To us, it is impossible to access clear and unambiguous data about Climate Change. Also, there is so much variance in the weather that it takes decades to accurately assess changes to the average. However, we take the view that it would be prudent to address some of the worst potential triggers in human activity. But it would be wrong to reduce western civilisation to penury, just to fight what might still be a collective hysteria.

As we have written before, we are not fans of the BBC, and this event illustrates how they continue to twist their news reporting with political interpretation.

Summary

  1. The Whaley Bridge Dam Drama is not about Climate Change

  2. The damage to the reservoir was caused by bad maintenance by the Canal and River Trust

  3. The BBC and other media have let Climate Change hysteria politics affect their reporting

 

PS. Nice politics by Boris, visiting and looking concerned!