Music Legends Clash With Spotify Over Rogan Anti-Vax Controversy

Content ControversyMusic streaming platform Spotify has been drawing plenty of heat recently following a row which erupted just a fortnight ago. Folk-rock icon Neil Young called on Spotify to make a choice between having his music on their platform or Joe Rogan’s podcasts. Young took aim at Spotify over the content of Rogan’s podcasts, specifically with regard to the information he has shared about vaccines (Rogan is anti-vaccine), which Young claimed is false and harmful.Neil Young & Joni Mitchell Pull Their MusicHowever, Spotify refused to back down went ahead with Young’s request, removing his music from the platform. Since then, however, several other major artists, including Joni Mitchell, have followed suit and demanded their music be taken down in solidarity with Young. The issue has snowballed and drawn plenty of attention online with Spotify attracting massive criticism over the event. Shares in the company plunged by almost 30% before rebounding in recent days.Rogan ApologisesRogan published an apology broadcast, admitting that some of his content was a little carried away and pledged to be more balanced going forward. Spotify also declared that they will now publish a “content advisory” warning along with Rogan’s podcasts and any other such series deemed controversial. Since then, shares have rebounded with price almost back to where it was ahead of the event unfolding.However, the issue potentially caused a seismic shift in Spotify’s fanbase, still drawing plenty of attention online. Along with rumours of other huge names due to follow suit, Taylor Swift’s fans have been calling for her to remove her music, which would be a massive blow to the platform if it happened.Spotify Earnings DueLooking ahead, Spotify is due to report Q4 2021 earnings later today. EPS is estimated at -$0.58 with revenues expected at $3.015billion. This would mark a decline in earnings from the prior quarter’s -$0.48 reading but an uptick in revenues from the prior quarter’s $2.896billion.Technical ViewsSPOTThe rally off the 167.02 level and bear channel low in Spotify has seen the market trading back up to test the 202.54 level. With both MACD and RSI turning firmly higher here, the rebound looks in good shape. Th e big test now will be the 218.44 level and bear channel top. An earnings beat today could fuel a break of that region. However, if price fails to break above there, the focus remains on further downside near-term.

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Five reasons to buy silver – and five reasons not to

Today we consider silver. One day it will go to the moon – it has close ties with that planet, after all.

The question is whether it is worth the wait – “one day” and “within reasonable investment time horizons” are not the same thing.

The latter suggests three to five years; the former could mean a lifetime. Or more.

Five reasons you should rush out and buy silver

I’ve said it before: there is probably no investment with as much potential as silver, except perhaps some little-known tech that neither you nor I can understand. Yet there is no investment more frustrating. 

With that in mind, today I offer you five reasons to buy silver – and five reasons not to. Balance is everything, after all.

Let’s start with why you should go all in and buy.

1. Silver is cheap

The all-time high for silver was $50/oz, a price set a long time ago in the mists of time. Well, 1980. $50 was subsequently re-tested in 2011. The re-test failed. 

Today silver sits at $22.60 – that’s 55% lower. Is there any other asset, let alone a commodity, that is trading at such a discount to its all-time highs, especially with all the currency debasement that has gone on? It’s so cheap.

2. Silver should be much more expensive

There is roughly 15 times as much silver in the earth’s crust as there is gold, thus, the silver price should be 15 times the gold price. Indeed, that is the historical average. And by historical average I mean in Ancient Mesopotamia, in Ancient Greece, in the Dark and Middle Ages, in the Early Modern Era, right up to the 20th century. 

Today the silver price is 79 times the gold price. A return to the historical average would mean silver five times higher, above $100/oz. And that’s assuming there is no appreciation in the gold price.

What’s more, silver gets consumed and so no longer exists; gold does not – it remains. Thus, really, the ratio should be lower than 15.

3. The silver price is suppressed (so the story goes)

The amount of silver sold forward on the Comex amounts to more than one year’s supply. In other words, the silver that has been sold can’t be delivered. Sooner or later this means there is going to be a run on physical silver. And the price will go bananas.

4. Silver has myriad uses

Silver is the best thermal and electrical conductor of all metals, so every phone, every computer, every TV, every (decent) battery, every photovoltaic cell contains silver. Before the invention/discovery of antibiotics, silver was the world’s most important antimicrobial agent. These antimicrobial, non-toxic qualities mean it has huge demand in medicine and consumer products – from biocides to fridges to paint. 

Its high reflectivity means it has demand in jewellery, silverware, mirrors and solar energy. It is malleable and ductile which means it can be beaten into sheets, drawn into wire, reduced into nanosilver or turned into paste – thus a plethora of industrial applications require it. Then there are its catalytic properties, which means it finds use in plastics, nuclear energy, the brazing and soldering; its photosensitivity… 

In short, it is nothing short of amazing how many uses this incredibly versatile metal is. If you want a picks-and-shovels play on cutting edge technology and man’s never-ending progress, surely silver is it. Everything uses it!

5. Silver is money

The word even means money – a pound was once a pound of sterling silver. “Argent” is silver. “Plata” is silver. In this age of relentless currency debasement, money-printing and inflation, you need to protect yourself. Silver, as a monetary and precious metal, does that.

Five reasons not to touch silver

And now for the rebuttals.

1. Silver isn’t cheap

Those two all-time highs are illusory figures. The 1980 high came at the end of the inflation of the 1970s, when the Hunt brothers infamously attempted to corner the market and triggered a panic. The 2011 high came after a speculative frenzy accompanied by a false silver shortage narrative at the end of a decade-long bull market. While those highs do show what’s possible, they mean nothing.

2. Ratios don’t matter

Who cares what the historical average is? There may be 15 times more silver in the earth’s crust, but it’s a lot easier to mine than the gold is. Indeed, most silver is produced as a by-product of mining for other metals, zinc especially. 

Many of the world’s largest silver producers are not even silver companies - Glencore, Codelco, Vedanta (Hindustan Zinc), Southern Copper, Polymetal, Newmont. Silver makes up such a small part of their revenue that the price is (almost) unimportant. 

The market sets the price. Not the earth’s crust.

3. Silver isn’t being suppressed

Price manipulation stories have been doing the rounds since the 1970s. They have lost their credibility. The derivatives market is always bigger than the physical markets; if you looked at the magnitude of the global derivatives market, you’d be packing your tins and guns and making for the hills tomorrow (with lots of silver coins). 

It’s only when you realise most of them cancel each other out, then calmness returns. If the price is suppressed, there is nothing you can do anyway. Only worry about what you can affect, and all that. Let nefarious silver-price-manipulation narratives be somebody else’s problem.

4. Silver is useful but you don’t need much

Yes, silver’s myriad uses are amazing, but the amount of silver required for pretty much all of them is minuscule, so it doesn’t have much effect on prices. Current physical supplies meet demand, particularly when you factor in recycling. If there was a genuine shortage, you’d know about it pretty quickly. There isn’t – that’s why the price is low.

5. Money has moved on

Silver may have been money once upon a time, but it isn’t now. It hasn’t been money for a hundred years or more and it’s unlikely ever to be again. It’s as irrelevant to money as the horse is to transport. Money is no longer physical; it is digital, and cryptocurrencies are the money of the future – metal isn’t

As for being a hedge against inflation, silver’s been useless. How much money has been printed since 1980? How much has currency been debased? And silver is trading at the same price it was 40 years ago. Come off it – it’s been a rotten inflation hedge.

And so there we have it. Five reasons to own silver, and five reasons not to. How about that for balance?

I will say this: I own silver; I don’t think I’ve ever known an investment with as much potential. But it never delivers. 

It’s like that talented genius you know. They could do anything, but they always find a way to screw up. You can only look at them, shake your head and go, “if only”. 

Dominic’s film, Adam Smith: Father of the Fringe, about the unlikely influence of the father of economics on the greatest arts festival in the world is now available to watch on YouTube.

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RBA Governor Says 2022 Rate Hike Now "Plausible"

AUD Trading HigherThe Australian Dollar has seen better demand today following comments overnight from RBA governor Lowe. Following the RBA’s February meeting which saw the bank announcing an end to QE but citing ongoing concerns over the sustainability of the pickup in inflation, Lowe’s comments last night were deemed more hawkish than the market was anticipating.Lowe Upbeat On EconomyLowe noted that the economy is growing at a faster pace than expected, accompanied by higher inflation. Adding some colour to the updated forecasts offered this week, Lowe also noted that while real GDP forecasts for 2022 had been lowered to 4.5%, this was because growth in 2021 had been revised sharply higher. Additionally, the bank has raised its inflation forecast for the same period while the unemployment rate is expected to fall further to around 3.75%.Uncertainty Remains An IssueBottom line is, Lowe is optimistic on the economy. The data is trending higher and the projections are solid. However, the fly in the ointment for the RBA continues to be uncertainty. Lowe spoke about uncertainty during the RBA’s meeting and dug a little deeper during these comments. Firstly, the RBA is concerned around COVID linked uncertainty, the potential for more variants to pop up and for further lockdowns to be needed. Secondly, the RBA is concerned about uncertainty linked to the pickup in inflation.While inflation is moving firmly higher, there are concerns around how sustainable this rise is given that it is largely attributable to supply-side issues which will surely be resolved at some point, likely leading to a drop off in inflation. Furthermore, while inflation is rising, wage growth is still subdued. However, if the current dynamic of higher inflation and a tighter labour market continues, wage growth is set to pickup firmly. So, it’s at this point which we might see the RBA turn more firmly hawkish.2022 Rate Hike Now Plausible Finally, then, we heard Lowe break from the party line, noting that rate hikes in 2022 are “plausible” if the current economic trajectory continues and downside risks don't materialise. Previously, the bank has firmly pushed back against the idea of hikes ahead of the 2024 target date. Recently this view shifted to hikes this year being “unlikely” and now the language has changed again. Light at the end of the tunnel for Aussie bulls?Technical ViewsASX200The collapse in ASX200 from YTD highs saw the market finding strong demand into a test of the 6876.50 level support. Price has since bounced sharply but is yet to break back above the 7155.96 level. This is a major level for the market and while below here, price remains vulnerable to a further push lower. Bulls will need to see price break back above this level convincingly to put the focus back on upside.

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Dollar Edges Lower; Alphabet Results Boost Risk Sentiment

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China’s largest real estate broker and why you should short its shares

One key structural feature of the Chinese economy over the past 15 years has been the booming property market. Thanks to a combination of rapid economic growth, loose monetary policy and Beijing’s decision to put housebuilding and construction at the forefront of a series of fiscal stimulus packages, the Chinese real estate sector is the largest in the world. Indeed, China’s property market is now worth twice as much as the US property market, even though the US economy is still 50% larger in dollar terms (and only slightly smaller when differences in purchasing power are accounted for). However, this boom seems about to come to a messy end.

Beijing has slammed on the brakes, restricting access to credit and tightening regulations, in a (belated) attempt to deflate the bubble. In the past, attempts to rein in the sector have ended without much impact, partly because the Chinese government feared that a slowdown in the sector would have too much of an impact on growth. However, the current crackdown seems more serious. Not only has the number of new building projects collapsed, but many Chinese property groups are now in trouble, most notably Evergrande, which technically defaulted last month, and is undergoing an official “restructuring”. 

China’s property woes

While not quite on the scale of Evergrande, another company which stands to lose from the fallout is KE Holdings (NYSE: BEKE). It claims to be China’s largest real estate broker in terms of transaction numbers – according to its figures, its sales more than doubled between 2017 and 2020. As a result, its share price also doubled only a few months after it listed in the US in August 2020. However, its share price has since fallen by more than two-thirds, as doubts about Chinese property continue to grow. To add insult to injury, Muddy Waters Capital, run by noted short-seller Carson Block, published a report in December querying some of the figures KE has produced regarding sales and transactions.

Yet even if its figures are accurate, KE Holdings seems overvalued, trading at 35.4 times 2022 earnings. Assuming the Chinese real estate market doesn’t collapse (a big assumption, as things stand), KE’s growth is set to fall to a more modest 10% a year. Meanwhile it faces intense competition from other national brands, as well as local brokers, who are willing to charge a fraction of its 2% fee on every sale. Another concern is the fact that it is struggling to use its capital productively, producing a measly return on capital employed (ROCE) of around 2% a year. Unless it is able to increase this, its growth will effectively be destroying value.

Overall, with the share price still drifting lower I’d suggest shorting KE Holdings at the current price of $21.74 at £90 per $1. I’d cover your position if it rises above $32.74. This gives you a possible downside of £990.

Trading techniques: the skyscraper index

Last October, as part of a crackdown on “speculative” real estate projects, the Chinese authorities ordered that local cities stop building “super high-rise buildings”. The ban was prompted by a number of cases where buildings had experienced problems (most notably in Shenzen, where people had to be evacuated from one skyscraper). Yet it’s somewhat ironic because tall buildings are also typically associated with stockmarket bubbles. 

While there are various versions of the “skyscraper index”, the basic logic is that skyscrapers tend to be poor investments, producing low returns. So for skyscrapers to be built, their backers need to be driven more by vanity or irrational optimism, rather than commercial logic; there needs to be a dearth of more profitable and practical investment opportunities to exploit; and, since they are usually funded with borrowed money, credit also has to be widely and easily available (a key factor associated with bubbles).

There is anecdotal evidence to support the idea that the building of record-breaking towers coincides with market crashes. Construction of the Empire State Building began a few months after the Wall Street Crash, while the original World Trade Centre in New York and the Sears Tower in Chicago were both started in the early 1970s, just before another bear market. Dubai’s Burj Khalifa (currently the largest building in the world) was still being built during the global financial crisis.

However, a study in 2015 by Bruce Mizrach, Jason Barr, and Kusum Mundra of Rutgers University, comparing construction dates for the world’s highest buildings with changes in economic output, argued that such buildings tend to follow – rather than predict – the economic cycle.

How my tips have fared

Despite the recent market turbulence, my long tips haven’t done as badly as you might expect, with three rising and three falling. US homebuilder DR Horton fell below the stop-loss level of $88 (which means you would have automatically closed the position). Construction firm Morgan Sindall fell from 2,362p to 2,150p, while wealth manager Rathbone Group dropped from 2,060p to 1,866p. However, supermarket J Sainsbury went up from 279p to 285p, mobile phone group Airtel Africa rose from 135p to 149p, and bus company National Express rose from 255p to 264p. Counting DR Horton, my long tips are making a profit of £3,210, down from £3,823.

The overall performance of my long tips may have been disappointing, but the silver lining to the market turmoil is that my short tips moved in my favour, especially as technology and so-called meme stocks, have done particularly badly over the past fortnight. Online marketing group HubSpot fell from $530 to $455, US cinema chain AMC slid from $22.78 to $16.64, while remote medicine firm Teladoc went down from $79.80 to $73.18. Overall, my shorts are making a profit of £2,597.

Looking over the portfolio, I have five long tips (Morgan Sindall, Rathbone Group, J Sainsbury, Airtel Africa and National Express), plus four short tips (KE Holdings, HubSpot, AMC and Teladoc). While I wouldn’t suggest you close any of the current long positions, I’d raise the stop loss on Morgan Sindall to 1,875p (from 1,850p); on J Sainsbury to 1,550p (from 1,500p); on Airtel Africa to 105p (from 95p); and on National Express to 130p (from 123p). I’d also cut the price at which you cover your AMC short to $40 (from $45), and cover Teladoc at $150 (from $210).

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Investment Bank Outlook 02-02-2022

CitiEuropean OpenRisk sentiment remains stable, with modest follow through during the Asia session due to Lunar New Year Holidays. The themes remain the same – how much more hawkish the FOMC can be vs market expectations, and whether the ECB could be forced to pivot on inflation trends. Therefore we may see some further two way price action with upside risks to the overall Eurozone CPI print at 10:00 GMT though we suspect EURUSD may cap out around 1.13 ahead of the ECB. ADP data in the US is unlikely to move markets ahead of what's expected to be a temporarily soft NFP number on Friday.AUD continued to be the highlight of the Asia session with RBA Governor Lowe doubling down on his February message, guiding expectations towards late 2022 or early 2023 for lift off. INR FX underperformed slightly after Tuesday’s budget announcement, while PEN sees the appointment of a potentially market friendly finance minister, and some uncertainty about the PM. RUB continues to recover though geopolitical headlines remain. What’s in focusUSD: Ticking along. A hawkish Fed means that we see further USD upside over time in particular vs funders, as outlined in Our humble and nimble view of USD upside. To recap Tuesday’s Fedspeak:–Philly Fed President Harker said he “sees four 25bp hikes in 2022,” but when questioned on whether a 50bp hike, he sounded more tentative. Harker also said he wouldn’t commit to balance sheet reduction until further data is seen and suggested the Fed could possibly sell assets at an unconfirmed time.–Bullard also sounded cautious on balance sheet runoff, though our US economist, Andrew Hollenhorst, confirmed that Citi’s base case is still for balance sheet reduction to start in July (Q3), with May or June (Q2) not being too surprising.Credit AgricoleAsia overnightThe Lunar New Year holidays continue to limit the news-flow coming from Asia, and as such G10 currencies have been treading water overnight, with daily moves of no more than +/-0.1% against the USD. With equity futures broadly flashing green, risk sentiment appears as slightly supportive, as the AUD has been the marginal outperformer on the day, thanks primarily to the comments made by the RBA governor who did not rule out the possibility of 2022 rate hikes.USD: ADP yet to regain some predictive credentials The USD was marginally offered against other G10 FX at the start of February although long UST yields crept higher on the day. The surprising rebound in the prices paid component of the latest US ISM manufacturing survey may have revived the prospects of more entrenched inflationary pressures across US supply chains. In the meantime, production and new orders cooled to their lowest level in more than 18 months, while employment firmed somewhat. This was nicely complemented by a further rise in JOLTS job openings in December, although attention is rather focused on the January developments. In that respect, today the ADP survey could offer the first gauge of US private employment in 2022, even though market participants could remember that the ADP release failed to predict the massive NFP disappointment of the past couple of months. As such, the knock-on effect on the USD could be fairly limited ahead of the more important publication of the January US jobs report on Friday.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/investment-bank-outlook-02-02-2022"
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AUDUSD Rally Looks Weak as RBA Disappoints Hawks

Long-term rates in the US have been creeping down for the fourth session in a row amid warnings from major US investment banks that previous forecasts for the growth of the US economy for 2022 may be too optimistic. Goldman lowered its growth forecast for 1Q and for the full year for the third time in three months, following in the footsteps of JP Morgan, while the Atlanta Fed estimated its growth forecast for the first quarter at just 0.1%:The softening of the uptrend in market rates took away support from the dollar as well: the US dollar index lost 1.3% in just two days. The sell-off in the dollar looks like profit-taking after the rally triggered by Powell's comments, and it's too early to talk about the end of the uptrend. There is still a lot of uncertainty around the March Fed rate hike, in particular, the size of the increase, in addition, the Central Bank has not yet announced details on asset sales, which, as already mentioned by the Fed, will occur along with the rate increases. In my opinion, the dollar will still remind of itself closer to the date of the March meeting, and the mark of 96 on the index will be the limit level of the current sell-off.The RBA ended QE but signaled that it was in no rush to raise the rate, saying that "end of QE does not imply interest rate hike in the near-term". AUDUSD initially bounced lower due to the disappointment of AUD hawks on expectations that the RBA will move to active tightening, however, due to the broad weakening of the dollar, it subsequently turned into growth and is testing the level of 0.71 today. Along with the completion of the large-scale sell-off of the dollar, a reversal and a return to the downtrend and AUDUSD can be expected, as the RBA, in fact, laid the foundation today for further divergence of its policy with the Fed. A rebound in the pair may meet resistance at 0.7150:As for the economic calendar for today, the main focus is on indicators of activity from the ISM in the US manufacturing sector, in particular on the price and hiring index. This will be one of the first reports that will allow to assess the dynamics of the US economy in the "tough" January.Yesterday's report on inflation in Germany surprised, the annual price growth accelerated to 4.9% (forecast 4.3%). Together with the growth of long-term rates in the Eurozone, this may indicate expectations that the ECB will soon move into action and begin to catch up with the Fed. Still, chances that Lagarde will hint at a rate hike this year remain low.

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Egypt's Suez Canal revenues reach $544.7 million in Jan - statement

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Market Spotlight: CAD GDP in Focus Next

CAD GDP Up NextThe release of Canadian GDP today will be closely watched following the recent BOC meeting. While the bank somewhat disappointed CAD bulls by holding off from any policy adjustments, it was firmly hawkish in its outlook. In terms of guidance, the BOC governor said that the bank expects to make several adjustments this year and advised that rate hikes are coming soon. In light of this, the market is widely expecting the BOC to lift rates in March, in line with the Fed. A strong reading on today’s GDP print will further reinforce these expectations, leading CAD higher near term.With oil prices holding near highs and inflation remaining elevated, expectations are firmly fixed on BOC tightening this year with some suggesting that the bank’s decision to hold off in January, might mean it needs to act at a quicker pace when it does begin tightening.Where to Trade Canadian GDP?EURCADEURCAD continues to hold within a large base of support, underpinned by the 1.4167 level. With price remaining within a large bear channel for now and with Russia/Ukraine tensions still showing clear downside risks for EUR near term, a strong reading today might be enough to fuel another leg lower as CAD traders look towards a March rate hike. Look for a break of the lows targeting 1.4029 initially and 1.3876 thereafter.

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Market crashes: what happens when investors believe the impossible

For those confused by the market this year, I have a suggestion: invest in the Practical History of Financial Markets course run by the Edinburgh Business School (you can do it online – no need to come to chilly Scotland). One of the modules focuses on the history of extreme market valuations – what causes them and what crashes them.

The first thing to note is that, while we love to talk about bubbles, periods of extreme valuation in the stockmarket don’t really happen very often. Of the 29 business cycles in the US since 1881 only a few have ended in one, according to Professor Russell Napier. But, while each has had its own peculiarities, the basic driver has been much the same: the ability of investors to believe absolutely in something that always turns out to be impossible. Namely that, thanks to some “marvels” of technology, corporate profits will stay high (and probably rise) indefinitely and that interest rates will also stay low indefinitely.

In most cycles investors do not think this, they assume cyclical normality – that fast economic growth will lead to capacity constraints and then to inflation and rate rises, something that would slow both economic growth and crimp corporate profits, thus bringing down valuations. We like to think of equities as all sorts of things; right now, for example, all too many investors think of them primarily as virtue signalling vehicles (witness the now collapsing bubble in renewable energy stocks).

But in the long term, equities aren’t about feelings or show ponying, they are about the net present value of all future income streams discounted at whatever the discount rate is at the time. That’s it. So, discount rate up; value down (usually when inflation hits about 4%).

A proper bubble can then only develop if investors do not assume cyclical normality but instead manage to convince themselves (against all historical experience) that it is possible for a high-profit, low-inflation environment to be permanent. This always ends badly – think 1901, 1921, 1929, 1966, 2000, 2007, briefly 2020, and possibly right now.

The only question is how fast it ends badly. The key thing here, says Napier in his lectures, is which bit of the equation investors have been getting wrong. If it is the belief that interest rates will never rise, you tend to get a long drawn out bear market (from 1966, when it would have been hard to imagine the inflation of the late 1970s). If it is more the belief that corporate earnings will stay high forever, it tends to be shorter and sharper (2020 was a mini classic of this genre of crash).

What have investors got wrong this time?

So here we are. Inflation has been minimal for years; US corporate profits have been very high and rising for years – they hit yet another record high in the third quarter of 2021. And of course, as a result, US stockmarket valuations hit bubble levels some time ago: by the end of last year the cyclically adjusted price/earnings ratio (Cape) was knocking at about 40, more than double its long-term average. Investors have once again been believing too many impossible things before breakfast – something they might be starting to realise.

So here’s the question: which bit have we got most wrong this time around? Is it the discount rate or corporate profits? The discount rate feels like the obvious one, although rising interest rates obviously hit corporate margins too.

Cheap labour and globalisation long ago made inflation no more than a distant nightmare for older investors and a mystery to younger ones. Most thus fell for the nonsense from central banks last year that the fast-rising inflation they were seeing was transitory. And even those that thought it might last beyond, say, Easter still believed that central banks would hold off raising rates regardless.

So the fact that high growth (US gross domestic product grew by 6.9% in the last quarter of 2021) really can slam into capacity constraints and create inflation rates starting with sevens is turning out to be a horrible shock – as are the indications that central banks might actually do something about it.

The Federal Reserve, under pressure from the inflation itself and possibly also from polls suggesting that said inflation is not helping Joe Biden, is now changing tune (no more “transitory”). There is even, says Aegon Asset Management, “a reasonable probability of seven rate hikes this year, one at each meeting”. Illusion-shattering stuff.

It also leaves investors with little choice: as long as the Fed holds this line they should surely not buy dips but sell rallies – at least when it comes to their most expensive holdings (we can argue about whether the likes of Peloton, down 80% in six months, is still expensive or not). In inflationary times, value today starts to look like it might be worth more than possible value tomorrow (a bird in the hand is worth a lot more than an electric flying car in the bush).

With that in mind, it is worth noting that the FTSE 100, with its reasonably valued income generating stocks, is outperforming the S&P 500 – so much so that it is now on track to have outperformed over 12-months by the end of this month – something it hasn’t done for a full year since May 2017. But it is a switch I suspect most Practical History of Financial Markets students were ready for.

• This article was first published in the Financial Times

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The IndeX Files 01-02-2022

Equities Rebound As Dollar Tanks On Softer Fed CommentaryBenchmark global equities indices are starting February on the front foot with risk assets rebounding firmly this week following the heavy sell off seen over the prior fortnight. Equities appear to have taken some solace in the dialling back of hawkish Fed commentary following comments from Fed’s Bostic over the weekend. Bostic initially said that the Fed might be forced to tighten rates by as much as 0.5% instead of the expected 0.25% in a bid to address inflation. However, Bostic has since walked back on those comments saying such a move wouldn’t be his preferred option, and outlined his support for just three rate hikes this year. Fed’s George and Daly were also head voice their support for slow and gradual hikes. With this in mind, USD has corrected lower this week, allowing equities markets room to rebound.Risk assets have also been supported by comments from Russia, pushing back against the idea of an imminent invasion of Ukraine. Russia has accused NATO and the western media of trying to spark a war and criticised reports outlining Russian invasion plans. While the situation remains very tense, markets for now at least appear to be taking some comfort in this dialling back of tensions.Looking ahead this week the focus will be on the US labour reports due on Friday. A solid set of figures on Friday will easily rejuvenate demand for USD putting equities markets back under pressure. However, given the current dynamic, should we see any undershooting of forecasts, this would no doubt drive USD lower, giving equities further room to run higher.Technical ViewsDAXThe rebound in the DAX off the 15078.83 lows has seen the market breaking back above the broken bullish trend line and above the 15473.83 level support. While above here, and with MACD and RSI turning quickly higher, the focus is on a continuation. However, 15743.01 remains a big obstacle which bulls needs to overcome quickly.S&P 500The rebound off the 4295.75 lows has seen price breaking back above the 4475.25 level. While demand is looking good for now, the breakdown through the rising trend line was heavy and until price reclaims the broken trend line, there are risks of a further move to the downside, potentially effecting a shift in trend.FTSEThe FTSE continues to hold in a tight block of price action just below the 7558.7 level and bull channel top. Following the rebound off the 7241 lows, both MACD and RSI are turning higher, suggesting focus remains on further upside for now with 7691.6 the next level to note.NIKKEIThe rally off the 26246 lows has seen price trading back up to retest the underside of the broken contracting triangle pattern. This region, marked by 27422.9 resistance, is holding for now, meaning further downside cannot be ruled out. However, a break higher here would be firmly bullish, confirming a false downside break of the triangle, and putting the focus on 28356.6 next.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/the-index-files-01-02-2022"
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USDCHF Struggles! Remains Above 0.9300

USDCHF consistently showed gains last week and now the bulls are trying to keep it above the 0.9300 level. The results of last week’s hawkish FOMC meeting clearly helped strengthen the USD on the whole and helped the USDCHF out of the 0.9100–0.9200 trading range it has been in since early January.

However, the bears are still trying to keep the USDCHF from rising higher than the November 2021 high of 0.9370, with the 2021 high of 0.9458 being the last resistance level the bears need to defend. The movement of 20- and 50-period SMA in the H4 time interval indicates a Golden Cross, but the RSI-14 and MACD indicators indicate that the USDCHF pair has passed the overbought zone, and a short-term retracement is possible. The 0.9200 level is the closest support to the 0.9100 level and would be activated as support if USDCHF records a sharp fall.

Current sentiment now clearly supports the strengthening of the USD with the market now focusing on speculation of a 50-point rate hike at the March 2022 FOMC meeting against the safe haven currency CHF. The release of NFP data this Friday is expected to give an indication of the movement of the USDCHF in the short term.

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Tunku Ishak Al-Irsyad

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our written permission.

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Which investment trusts performed the best in 2021, and what might perform this year?

• SEE MORE The MoneyWeek model portfolio of investment trusts

At first sight, 2021 was a disappointing year for investment trust performance. 

The Closed-End Investments index returned a very respectable 12.8%, but this was 5.5% behind the 18.3% return of the All-Share index. Meanwhile, the MSCI AC World index, boosted by the 28.1% return from the US, returned 20.1% in sterling.

This followed a 2020 in which the Closed-End index returned 17.8% – 27.6% ahead of the All-Share index, the largest gap in 30 years. This caused many UK institutional investors to complain about the inclusion of investment trusts in the All-Share index, arguing that it caused them to underperform, which was unfair. 

Yet in 2021, after that stellar 2020, investment trusts held the All-Share back. What happened?

Why was 2021 a tougher year for investment trusts?

The average discount to net asset value (NAV) for investment trusts fell from 1.7% to 1.5% during 2021, so the underperformance cannot be explained by widening discounts. Indeed, a record £12.2bn of new capital was raised for existing trusts and a further £4bn for 15 new issues. 

This, together with performance and after deducting some returns of capital, raised industry assets to an all-time high of £227.6bn, according to the Association of Investment Companies (AIC). Net capital raised of £14.9bn was, according to JP Morgan Cazenove, 247% higher than in 2020. This, alongside the low discount to NAV suggests no loss of investor confidence in the sector.

Although most of the equity component of the sector, especially the global funds, is growth orientated, this was not necessarily a problem. Though value shares, which had lagged badly in 2020, outperformed growth, the gap was narrow. The MSCI World Value index in sterling returned 23.9% and Growth 22.5%. 

What held the sector back, according to JP Morgan Cazenove estimates, was primarily asset allocation, ie, too much exposure to lagging sectors. Stock selection, gearing (borrowing) and non-UK exposure all helped performance relative to the All-Share index.

The average return of trusts in the UK commercial property sector was 30.2% and seven funds in the broader property sector returned over 40%. Private equity, where value was abundant both in valuations and discounts, the return was 42%. The property and private equity sub-sectors account for £20bn and £27bn by value, over 20% of the total.

The performance of the growth trusts, however, lagged. Technology trusts (£7bn by value) returned 19% while the Dow Jones Technology index returned 30% in sterling and healthcare trusts (£6.4bn by value) returned a weighted average of -5.3% compared with a 21% sterling return from the MSCI World Healthcare Index. The poor performance of biotechnology shares, over-represented in the investment trust sub-sector, was a significant factor in this underperformance. 

Growth-orientated generalist trusts also under-performed. The giant Scottish Mortgage Trust, valued at over £20bn, returned 10.5% – but it had more than doubled in 2020. Its performance in 2021 was way behind that of global indices. Sister trust Monks, with £3.3bn of assets, returned just 1%. Baillie Gifford’s other trusts also lagged badly, notably Edinburgh Worldwide (-21%), UK Growth (8%), European Growth (4%), US Growth (-5%) Japan (-10%) and Shin Nippon (-17%). Pacific Horizon (15%), though, had a surprisingly good year (more on that below).

Why did these and other growth managers perform poorly? Probably because they switched into up-and-coming growth stocks at the expense of what Ed Yardeni calls “the magnificent eight” at the top of the S&P 500, which continued to storm ahead. In 2022, though, it may be a different story.

Investment trust performance overall was also held back by the steady returns of much of the “alternatives” sector, which now accounts for approaching half of the total. While private equity and most property funds did well, the weighted average return in the renewable energy sector (valued at £15bn) was 8%. It was no higher in the rest of the infrastructure sector (valued at £17bn) with the honourable exception of 3i Infrastructure (+19%). Most debt funds also produced modest returns, in line with their targets.

How China hit returns in emerging markets 

President Xi’s crackdown on the private sector caused a bear market in Chinese equities with the MSCI China index falling 20%. Whether the outlook for investment in China will worsen, stabilise or improve is probably the major uncertainty of the next few years. China, excluding Taiwan, accounts for 31% of the MSCI Emerging markets index and 37% of the Asia ex-Japan index (Hong Kong is regarded as a developed market so companies listed there are not included in emerging markets but are a further 7% of Asia ex-Japan). The drag of China resulted in small falls in both indices.

Despite this, some trusts in the sector performed remarkably well, notably those specialising in India, Vietnam and Frontier Markets. The three Asian smaller companies funds, whose benchmarks have much lower exposure to China, also did well. The scepticism towards Chinese companies of Mobius Investment Trust (+12%) and Pacific Assets (+15%) paid off but the 16% return of Baillie Gifford’s Pacific Horizon Trust was the most remarkable, as it followed a 133% return in 2021.

Also remarkable was the 35% return of RIT which sets out to lag on the upside in order to protect on the downside. Caledonia (+44%) did even better. Both benefited from the success of their private equity investments. Among the global trusts, strong investment performance, but no private equity, resulted in AVI Global, Mid-Wynd and Brunner returning over 20% while nearly all small cap trusts in all markets except Japan performed well.

Many of the UK funds beat the All-Share index with Merchants (+32%) and Fidelity Special Values (+27%) in the lead. The same was true in Europe where BlackRock Greater Europe (+32%) led the pack and the 6% appreciation of sterling against the euro did not appear to hold returns back.

Overall, there were plenty of triumphs, some disappointments but very few disasters. Good fund managers do not churn their portfolios or make radical changes to their investment styles so it is not surprising that some of the heroes of 2020 had a disappointing year. In contrast, most of those that struggled in 2020 were rewarded in 2021 by better market conditions for their specialities and styles. 

The bears believe that persistent inflation and rising interest rates will make 2022 a difficult year; the bulls that economic growth will support the uptrend in corporate earnings and that a return to normality in monetary policy is healthy. Whoever is right, investment returns, both for growth (but not at any price) and for value investors, are likely to be healthy over the next five years, which should be the horizon of most investors.

from Moneyweek RSS Feed https://moneyweek.com/investments/funds/investment-trusts/604405/which-investment-trusts-performed-the-best-in-2021
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Investment Bank Outlook 01-02-2022

CitiEuropean OpenLunar new year holidays ensured that it was quiet overnight, with just AUD markets in focus. This gave market participants some time to digest Monday moves, which saw US equities rally into the close. We suspect this was driven by a combination of short covering, month end flow, and slightly dovish Fedspeak relative to market expectations. European assets trade well with EURUSD back above 1.12 and CHF price action in focus.AUD saw slight disappointment after the RBA halted QE but stopped short of endorsing hike pricing, instead remaining “patient” and putting emphasis on upcoming CPI and wages data. Overnight, US stocks remain the key determinant for sentiment, with a gentle risk-off tone in markets as the white hot month-end stock rally gave up ground allowing CHF and JPY some small outperformance. Looking ahead, we see headline risk with the ongoing India budget announcement, room for further Fedspeak and Russia Foreign Minister Sergei Lavrov and US Secretary of State Antony Blinken speaking by phone today. France CPI could be interesting after the Germany beat, while CZK sees GDP.AUD underwhelmed?The RBA meeting produced a hard stop on AUD4bn/week QE program as expected with rates unchanged. However it was a slightly more dovish outcome than market pricing as the RBA said it was prepared to be “patient” and noted ceasing QE “does not imply a near-term increase in interest rates.” Unemployment and inflation forecasts were marked higher as expected. Note that Lowe will be speaking on Wednesday morning in Asia and the RBA statement on monetary policy is due for release on Friday. On the margin, my Asia colleagues on CitiFX Wire say this was net dovish with markets well prepared for QE to end, and looking for more endorsement for hikes. These cards are not taken off the table yet as RBA puts emphasis on upcoming CPI and wage growth data as the key determinants. However AUDUSD walked back losses at a test of 0.7050. There remains around 100bps of tightening priced in for 2022.CitiFX Strategist Vas Gkionakis says that all this suggests the focus should be squarely on the wage and inflation releases, which need to show a consistent pick up in the underlying pace for the RBA to start hiking rates. The next important release will be on 23 February (wage growth) but it will not be before mid-to-late May until the next releases become available (CPI for Q1 released on 27 April and Wage growth for Q1 released on 18 May).

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/investment-bank-outlook-01-02-2022"
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