Hello and greetings fellow market wizards (and Julian and I)
Julian Rimmer 10:30
Good morning, Aloha and greetings fellow market wizards.
So I decided to start things up a little differently today
By getting Google’s Bard AI to write a short haiku about spot markets live:
Markets rise and fall,
Boomers buy, Zoomers sell,
Trading places soon.
He was kind enough to provide this alternative;
Clueless boomers invest,
Zoomers HODL and diamond hands,
Wealth will soon shift.
Julian Rimmer 10:31
The Boomer has a problem with this
They fail to observe internationally recognised rules of engagement for the haiku
- It has three lines.
- It has five syllables in the first and third lines.
- It has seven syllables in the second line.
- Its lines don’t rhyme.
Haiku should also have a keyword.
I’m honestly surprised the AI can’t figure out a haiku. So much for world dominance soon
Julian Rimmer 10:32
Bard AI gets very low marks
We’ll try another AI tomorrow
Julian Rimmer 10:32
I will write my own
And just before we jump into the ARC forum
I wanted to share a meme I found particularly funny this morning;
Speaking of Arc-tics’, what’s up with the ARC forum?
Julian Rimmer 10:33
Please, this humble Boomer beseeches you, school me in the ways of the Zoomer.
I don’t even get that meme.
It’s about clueless Europeans, basically…
Julian Rimmer 10:34
Izzy sent us some priceless material on the Arc Forum – the big event of autumn in London.
Before we incorporate her ‘notes’, just by way of explanation.
ARC mission statement:
(ARC is being established as an international community with a vision for a better world where every citizen can prosper, contribute, and flourish)
(It will never catch on)
Izzy star-struck me via proxy
By mosying up to Erik Prince by the coffee stand
(He’s my favourite Western mercenary)
And he is apparently launching a new podcast called “off leash” very soon
Holly Vallance was wandering around with Laurence Fox. I had to google both of those names.
The FT’s Jemima Kelly, a classic.
Unherd’s Freddie Sayers pulling his thoughts together on the sidelines.
Tory MP Miriam Cates packed like a sardine on the way home on the Jubilee line.
Good morning Colin!
Julian Rimmer 10:37
At lunch, Izzy admired the economist Philip Pilkington’s three-piece suit.
Many priests and religious folk were in attendance. Twitter files journalist Andrew Lowenthal in the foyer. Former Australian PM John Howard seemingly everywhere anyone turned. Stella Assange in the foyer. Michael Shellenberger in the foyer being congratulated post presentation.
Julian Rimmer 10:38
Hello from Arc Forum. The WEF forum challenger (or anti Davos) gearing up to move in on Klaus Schwab’s big mountain shindig where the doctrine of “you can’t solve public debt without a private jet” has been replaced with the rallying cry “my kingdom for a seat on the Jubilee line!”
Not quite the same glamour level in the environs of the 02 as in Davos. Delegates have to make do with the North Greenwich Intercontinental for the after drinks instead of the Belvedere.
So what is there to report?
Well for one thing for a group centred on creating a better vision of tomorrow and a better story for western enlightenment (Something I actually agree with. As Blind spot readers know I’ve been advocating for more Tom Cruise Top Gun films for a long time), they ain’t half got an apocalyptic name.
I’ll just let you know that is Izzy advocating for Tom Cruise films, not me.
Julian Rimmer 10:39
For me, the very presence of Tom Cruise in the credits guarantees my non-attendance at the cinema
There’s a certain Cathie Wood mentality in the room but without the ESG spin. Tho does she do ESG apart from Tesla investing? Not even sure.
Someone suggested it wasn’t Noah’s ark they are invoking but the ark of the covenant. Could be. But I’m pretty sure Phillipa Stroud, gearing up to be the new Klaus Schwab, did welcome everyone to the ark.
Julian Rimmer 10:40
It does put me in mind of the nursery song now playing on a loop in my head
‘The delegates went in two by two
‘The delegates went in two by two
Celebrities and the TV crew
For to get out of the rain…’
take that Bard AI – that’s how you scan
Rumours abound today that Elon Musk might make a showing before heading to Bletchley Park for Rishi’s AI summit as he’s been dropping “end of wokeism” and civilisational commentary on Twitter for the past 24 hours.
For those eager to know how Arc Man matches up with Davos man – well, for one thing, arc man arrives to change the world by the Jubilee Line. Probably squashed like a sardine.
Arc Man has to queue to get into the venue for at least 20-30 min. And doesn’t get a welcome pack. Arc Man wears tweed and brown polished loafers not wool and crampons. Arc man goes to church before the conference not a Mindfulness session. Arc man does lobster rolls not croissants from a French patisserie. Arc man watches GB News not CNN or BBC. Arc man reads Unherd, not the FT
Julian Rimmer 10:42
Arc man strikes me as a bit of a ****
Arc young global leaders of tomorrow read Tolkien and worry about the return of Sauron not climate change.
Arc badge hierarchy is yet to be understood. You seem to be yellow or green. But there doesn’t seem to be any VIP areas beyond the green room for stage prep.
The fringe events are at the 02 Intercontinental not the piano bar.
Arc man is less multi-stakeholder capitalism and more five eyes + a bit of Europe (but only the bits we can trust) weighted.
Julian Rimmer 10:43
Yesterday’s headliner was Jordan Peterson
Sporting a suit of such hideous vulgarity one wonders what dark malevolent voices in his head said, ‘Yes, that’s the look I’m after’ when he looked in the mirror.
Jordan thinks ‘Decline is not inevitable’ and ‘We can tilt towards heaven. It’s not too late.’
I beg to differ.
Well that’s quite ironic because Jordan’s own decline seems inevitable
Used to be a very big fan of his… then he got into wokeism…
(It really is two-tone, Graham…)
Julian Rimmer 10:45
Okay, moving swiftly along now from one continent to another…
At The Blind Spot, there’s nothing we like more than a contrarian angle:
and we think India, currently the posterchild for Emerging Market success, deserves a different perspective.
Huge inflows into India in the last few years, especially in midcaps where intl funds like to position themselves in high-growth stocks exposed to the boom in consumption.
The standard EM investment story:
Julian Rimmer 10:47
I’m hearing some of the premier funds in India are even closed to new money as they can’t deploy satisfactorily. Lots of punters are pushing the mid-cap into mega-cap angle at this juncture. Unsurprising given the outperformance depicted in the chart.
The small and midcaps benefit from capex while megacap names, especially in the IT sector are struggling with fears of a global recession.
Really interesting that they’re having such trouble deploying funds.
Julian Rimmer 10:48
Between March and Sept this year, intls ploughed $20bn into Indian stocks. Financials and discretionary ex-auto remain the largest O-WT sectors for internationals.
India is vulnerable to a sell-off. Foreigners have turned sellers in the last few weeks
Julian Rimmer 10:49
And so stocks are falling
Julian Rimmer 10:49
India is one of the world’s most expensive equity markets.
Julian Rimmer 10:49
Forward earnings estimates are stubbornly panglossian, household consumption is weak, higher rates will discourage capex and the c/a balance has peaked so a weakness in the BoP could weigh on the rupee.
For the zoomers:
Panglossian, “extremely optimistic, especially in the face of unrelieved hardship or adversity,” comes from Dr. Pangloss (Panglosse in French), an old, incurably optimistic tutor in Voltaire’s philosophical satire Candide.
Julian Rimmer 10:50
India has definitively entered the speculative bubble phase with WhatsApp groups sharing trading tips and YouTubers earning fortunes recommending get-rich-quick trading strategies.
The derivatives to cash volume ratio was 422 times in India in Oct at one point. There’s no country which comes even close to this.
This is troubling
On the YouTube tips trend:
The air-to-air cruise missile in question is these insane figures you’re pointing out.
Julian Rimmer 10:52
The Nifty 50 has put on 81% in the last 5 yrs. GS turned bearish this month citing global headwinds and expensive valuations while, for the sake of citing an alternative viewpoint, JPM remains constructive.
Inflows in the last 6 months totted up to $23bn before an outflow in Sept of $2.3bn a trend which has continued since.
The major endogenous risk would be a shock election defeat for Modi’s BJP next year. Chris Wood at Jefferies opined this week that a loss for Modi would cost the mkt 25% in short order.
And sometimes all you need is a little explosion to set a bubble off.
Julian Rimmer 10:54
Yes, as we know, mkts can remain irrational longer than one can stay solvent and what it takes is normally a change in sentiment, something political, to bring about a sudden reversal
Notably, India’s Kashmir border has been seeing some action recently.
Four days ago, Indian rangers and Pakistani troops engaged in heavy firing along the border region of Jammu.
Several soldiers were injured – but none were killed thankfully
Similarly, it was reported that up to five Kashmir “rebels” were killed in a gun battle with soldiers on the 26 October – just the day prior.
We’ve no idea if the two events were correlated.
(my bets are on yes)
Pakistan and India have done three wars since 1947 – two of them over Kashmir.
Though the particular reason for the recent conflagration is unknown and disputed, we note that in August 2019 India scrapped the long-standing semi-autonomous nature of the valley, which appeared to have escalated tensions between the two countries.
And speaking of warfare, some wily conflict watchers may have spotted the first instance of a corporate proxy war.
McDonald’s Israel confirmed that it would donate thousands of meals to the Israeli military on October 14.
After this announcement, McDonald’s Qatar announced a QR 1mn donation for aid to Gaza, with McDonalds outlets in Oman, the UAE and Saudi Arabia following suit and issuing more financial relief to the beleaguered enclave.
How’s that for modern warfare?
Julian Rimmer 10:55
I’m lovin it
Yesterday saw McDonald’s earnings come in, with MCD rising almost 2% as a result.
MCD reported an 18% increase in diluted earnings per share, with consolidated revenues rising by 14% and operating income by 16%.
Its quarterly cash dividend increased by 10% to $1.67 a share.
McDonald’s is a fascinating stock in an economic downturn because of its cheaply priced meals, making it an interesting barometer of consumption trends.
Julian Rimmer 10:56
(I’m actually a really big fan of McDonalds)
McDonalds’ relatively strong performance is interesting for two reasons.
The most important is a significant increase in market share for middle and higher-income consumers, while it actually lost traffic among low-income consumers.
I find this an interesting point of note, Julian.
Does this mean that people with more disposable income are increasingly turning to McDonalds as a “budget” option, while more genuine budget options have opened up at the lower scale of the market?
I’ve been seeing tons of Reddit posts of individuals making middle class incomes obsessed with the McDonalds app, which provides them with lots of one-off deals for consumption. So it seems the strategy to draw in individuals of higher incomes is working. I wonder what’s failing at the bottom
Julian Rimmer 10:58
I’d rather chew on the granite kitchen worktop when I come home pissed and hungry
(It’s actually really good, Julian)
Speaking of budget options for burger production, you may have missed the news about MrBeast Burgers – a story of breakthrough meal delivery concepts and the power of influencers.
This was an online fast food store operated by the influencer named MrBeast, also called Jimmy Donaldson – who made a name for himself by eye-catching products and monetary giveaways.
MrBeast Burgers was a Ghost Kitchen. And yes, it was a little spooky:
(that’s a picture of a MrBeast Burgers chicken sandwich.)
Julian Rimmer 11:00
This vindicates what I’ve always maintained since I developed adult sensibilities:
it’s stupid food for stupid people.
(That explains why I love it so much)
MrBeast Burgers partnered with Virtual Dining Concepts, a new type of restaurant – ‘ghost kitchens’ – that franchises out meals to restaurants with free counter space – providing them with merchandise, packaging, and some ingredients.
The concept was initially a hit – so many thousands flocked to Donaldson’s inauguration the police had to shut down the queue – breaking a world record for attendance. The launch video alone gained 122 million views in a month. 122 million. In a month.
Now it’s all gone tits up. Reported issues in quality – which were quite obvious when I wrote about them last year – have finally caught up to them. This type of ghost kitchen can help a quick product rollout, but there are expectedly few guarantees by way of Quality Control.
Julian Rimmer 11:01
Speaking of the very same ‘tits’:
do you recall there was a topless sandwich bar in Australia calling itself McTits?
It had upside-down golden arches.
Sadly I don’t recall, no. Very sad.
Julian Rimmer 11:02
Anyway, McDonalds sued them and closed them down. Another defeat for the freedom of expression.
They’re coming for all that is dear to us, Julian
On the other hand Dark kitchens – kitchens specifically created to cater for a group of restaurant meals – rather than a conventional restaurant operating an additional ‘ghost’ kitchen – seem to be working very well.
And while the burgers weren’t expensive, they weren’t cheap enough for their dreadful quality.
Now, MrBeast is suing his burger company, and his burger company is suing him.
Much like this:
But should the burgers have worked out, I fully believe we’d have a new burger chain on our hands. The key is influencer power. I keep harping on about influencer and their power for a reason
“These days, people’s choices as consumers or voters are increasingly determined by the public figures they provide their attention and trust to.
A similar personalisation trend occurred during the late years of the Roman Republic. Just like today, successive periods of turbulence were meted out by empowered patrician elites. These competed for influence both among themselves and the unruly mobs surrounding them. But the Republic and its rules were never fully swept away.
Roman Emperors’ power depended more on their personal influence, potestas, than on Republic-based official powers, auctoritas. The auctoritas which flowed from Republican institutions did not become irrelevant overnight. But it did mean that an Emperor’s favour would get you much further in Roman politics than a traditional career up the cursus honorum, the traditional upwards path for a Roman public official.
In this shift, previously irrelevant positions such as the pen-bearers or dressers in the Emperor’s domus, hitherto held by slaves or freedmen, were launched into the heart of Roman politics.”
Today’s purple-cloaked egocentric maniacs are the short-time span of a consumer’s attention on social media. And so the influencer-isation of society rumbles on.
Keep an eye on influencers – we’re rolling from a corporate to an influencer economy.
Julian Rimmer 11:04
The Hamas protesters in Birmingham last evening certainly had an influence.
Speaking of boxes of unpleasant things being strewn around
What’s going on with markets?
Julian Rimmer 11:05
I still find it astonishing to think that as recently as August, the consensus for US 3Q23 GDP was 0.5% and the actual number was almost 10x that.
more companies beat on Q3 than normal, and forward estimates for S&P and NDX have not been marked down — the bar for tech was clearly higher than expected, and the lack of upward revision to 2024 EPS was punished.
(I don’t know any Boomers who like Jordan Peterson. He’s huge among the Zoomer crowd. That’s my anecdotal evidence)
Julian Rimmer 11:07
US downside tail is protected by strong US growth; the upside tail is capped by rising interest rates. This interplay leaves us in a broad trading range,
(JohnDC77 – what about competition from the bottom of the market? The chicken shops?)
Julian Rimmer 11:07
Risk/reward is positive for the next two months. three reasons: (1) the US economy is strong (2) earnings growth remains healthy; (3) positioning and sentiment in the trading community has clearly swung to the negative side.
2 risks: geopolitical volatility and the threat of higher rates
The flow of funds and positioning would appear to lend support to the market.
(Greggs – yes! That is true McDonalds competition from the bottom of the market – and Chicken Cottage also. Strong brand, good quality control, cheaper prices. Unlike most chicken shops)
Julian Rimmer 11:08
One can assume that US corporates will buy back ~ $5bn of stock a day through Nov and Dec.
The US economy is fine. US will create about 2.8 million jobs this year – a remarkably powerful ballast in an economy that is still 2/3 consumption. we’re nowhere close to a recession.
(Y’all know your fast food…!)
Julian Rimmer 11:09
On the Fed…. Economists think they’re done, the market thinks they’re done, and recent rhetoric suggests much of the committee wants to be done. So, the FOMC could well be a non-event
Powell is seemingly willing to let the markets do any remaining work for them, especially considering the tightening in our financial conditions index since August has been equivalent to about 75 bps of Fed rate hikes.
I’ll just mention the BoJ quickly. Rather than ending YCC, they merely tweaked it
BOJ signalled it will take a more flexible approach to controlling yields on 10-year government debt. That’s an adjustment to its previous promise to conduct daily bond-buying operations at 1%, a stance that effectively pegged yields there.
Yen weakening again as a consequence, good for Japanese equities
In other news
Julian Rimmer 11:12
that’s a hard segue
(A segway as hard as concrete)
Are we about to head into a lasting peace, with significant Armenian concessions?
Or sudden war, with Azerbaijan suddenly invading?
Well, the last thing anyone expected, I suspect, is that it was all the Frenchy’s fault:
Julian Rimmer 11:12
“France would be responsible for causing’ new conflict in the region, said President Ilham Aliyev.”
And yes, France has become stuck in – selling Mistral missiles and Caesar self-propelled artillery vehicles to Armenia.
What for… URANIUM! Since France lost its supply of Uranium from Niger, it seems to be sniffing along different world markets in attempts to “get sum”.
This excellent article outlines Macron’s new visits for precisely this mineral. The President will visit Kazakhstan and Uzbekistan this week for much the same purposes.
And here’s a handy chart:
Julian Rimmer 11:14
On that note, Dario, a discussion for another day might be how Russia and China will be fighting for influence in Kazakh because of this – if they aren’t already.
We should absolutely look into that… sounds promising
Julian Rimmer 11:15
On the subject of uranium, never far from the top of my list of pressing concerns, ‘Hedge Funds Pile Into Uranium Stocks Set for ‘Dramatic’ Rise’ was the headline I saw on Bloomberg this morning. Uranium is trading in the mid-70s.
My old shop Investec yesterday morning on the subject:
Our commodity team is very constructive on Uranium, it’s just that there is no real way to play it in SA. However, Bloomberg is flagging that hedge funds are ratcheting up exposure to uranium firms globally. Bloomberg also flags a chart showing how uranium ETF assets have risen 20X in size in the 3 years alone. For those with international mandates, it may be well worthwhile scratching and sniffing in this space given the positive outlook we have on the commodity given renewed demands on nuclear power.’
(the Investec commodity analyst Nkateka Mathonsi is brilliant by the way)
Well, speaking of Uranium.
I did a quick look at how our loyal watchers could make some $$ from any looming conflict in the Caucasus.
The first point to remember is the value of Armenia’s Syunik’s region (the southern region under threat from Azerbaijan) is not just the supposed uranium – which is in relatively small quantities – the key is the lower transit cost for uranium supplies from the ‘stans’.
Kazakhstan is a Uranium giant – around 40% of global uranium comes from the country.
As you can see in the chart above.
Khazatprom, the state-owned Uranium miner which is traditionally dependent on Russia’s Rosatom’s capacity to export it to international markets in St. Petersburg, has been desperate to find additional supply routes that travel outside of Russia since 2022.
So much so that even a single shipment skirting Russia is considered newsworthy:
And guess where the novel Russia-avoidance route is:
You can see where I’m going with this
All Kazatprom needs is Turkey’s approval to begin exporting with Turkish railways into a Turkish mediterranean port.
And from there, shipping costs to the United States, France, and Canada, for instance, would see dramatic reductions in price.
Julian Rimmer 11:18
@johndc77 (the Queens’ College footy team annual dinner in 1988 took place at Martin’s Death Van in market sq, Cambridge because we’d been kicked out of two restaurants already. The event was considered a success)
It wouldn’t be hard to imagine Kazatprom could benefit from an Azerbaijani territorial union – just see the map above. There’s a straight line begging to be drawn from Azerbaijan to Turkey – and straight through Armenia’s Syunik.
There are other speculative options that could be interesting.
One miner that has consistently benefitted from Azerbaijani expansionism has been London-listed Anglo-Asian Mining PLC, which held Azerbaijani gold licenses for years in Armenian territory that only recently became Azerbaijani again.
You could also venture into the exciting world of Azerbaijani bonds. AzerGold, Azerbaijan’s state-owned gold mining company, is the largest exporter of non-oil goods in the country:
Speaking of rare minerals, I keep hearing about this lithium mine in the U.S.. Have you heard of it, Julian?
Julian Rimmer 11:19
That’s the very definition of a hopeful enquiry.
Essentially, the deposit is estimated to perhaps be the largest lithium deposit in the world, holding between 20 to 40 million tons of lithium.
While the “Lithium Triangle” of Chile, Argentina and Bolivia holds 75% of the world’s lithium supply underneath their salt flats, this discovery could upset everything.
While it’s certainly relevant, I’m not sure the geopolitics of batteries can be much affected. Lithium is still held strong in the American backyard, so whether it’s on the mainland or not is secondary from that perspective.
But that hasn’t stopped EV buffs from getting stars in their eyes at promising new supply.
But maybe EV bulls should be coddled these days.
Ford has joined a series of carmakers scaling back their Electric Vehicle plans of late, citing customer reticence to adopt electrical vehicles and slowing demand.
I wonder why, Julian? Any takers?
Julian Rimmer 11:21
We looked into leasing an EV last year after our car was stolen.
(By thieves who then used it for the attempted murder of a drug dealer in Northolt and burned it out afterwards. the police were not interested in the everyday theft of our car but as soon as they thought they may get on telly in a Crimewatch special they were all over it).
The EV was about 50% more expensive than the petrol equivalent and we reckoned petrol prices could double before it made sense to switch to EV
(It couldn’t be the extremely long charging times, could it? Or what about the unreliable range estimates? No, surely not. Noooooo.)
But wait… there’s EVEN MORE more crap to EVs than you thought!
News is dropping that a slight dink or donk to a car’s battery pack can force insurance companies to write off EVs after only a few miles
This leads to higher premiums that cut the price efficiency point of keeping an EV on the road for consumers.
And can we recycle these damaged batteries? Sure, in the future™ .
Right now – of course not. They’re piling up in depots.
I also guesstimated on last week’s Blind Spot Wrap that another risk has been ignored by EV makers – the pricing risk of the rise of internal combustion populists.
Much of EV demand – and EV investment – is driven by goals to stop selling internal combustion by 2035, for instance.
I’m VERY sceptical we will ever reach such a date
As we said:
“Well, if the Dutch Farmer-Citizen movement is anything to go by, investors in the EV space might be in for a rude awakening. That movement — sparked by a regulation proposing to halve the country’s livestock — almost singlehandedly ended the long reign of Prime Minister Mark Rutte. And the proposed legislation only affected the rural proportion of largely urban Dutch society.”
What do you think will happen when governments try to take consumers’ trusty internal combustion cars?
Well, you get the most dangerous version of populism – common-sense populism
A large political playfield from which to build an electoral platform with widespread appeal and straightforward demonisation of distant, out-of-touch elites.
Does that sound like a realistic concern?
Julian Rimmer 11:24
That sounds entirely plausible to me
We just need the Nigel Farage of EVs to enter the public sphere, to polarise things a bit.
One last thing to say on EVs. There’s much hate going on with Tesla’s Cybertruck.
Julian Rimmer 11:25
I hate it.
^ I would recommend a read
This excellent DD for instance scrapped the notion that Tesla could have 350-mile range on the Cybertruck, and that leaked details suggested it will barely get past 300.
Apparently, the sleek and cutting-edge design has led to a huge amount of pricing and technological inefficiencies
Musk seems to have pulled off the classic – prioritising form over function
(Also lack of experienced technicians, maintenance techniques yet to be built up, the difficulty of finding adequate recycler, etc)
But to my mind, one single picture shows the Cybertruck’s promise:
Julian Rimmer 11:27
It definitely won’t get 300-mile range if people keep riddling it with bullets
Hang on – was that car that Napoleon riddled himself with bullets?
I saw him pictured with an AR last week…
Was he shooting his own car?
Now that I think of it – Tommy guns are such a red flag!
Julian Rimmer 11:28
Call me old-fashioned (everyone does, it’s not just a figure of speech) but that’s questionable marketing.
Because it’s fired in 45ACP, unlike an AR-15’s .223 Remington, and as such quite low velocity. Very easy to make a 45mm bullet-resistant steel
Furthermore, the Thompson fires from an open bolt, which reduces muzzle velocity even more.
THAT BEING SAID
In a world increasingly submerged under security concerns and particularly the American market
I can 100% see a bullet-proof design becoming one of these unexpected staples of the high-end automobile industry.
I don’t know about you Julian, but I’ve remembered every single oh-this-will-be-a-failure-no-oh-wait-its-the-new-standard happening on repeat during my entire life.
Julian Rimmer 11:30
Thing is, when you walk into Walmart, the bulletproof car won’t help much.
Remember the iPhone? The iPad?
I think he’s onto something. Security will continue increasing in perceived customer value as long as this world continues going… tits up.
Julian Rimmer 11:31
A word of warning for Izzy at the ARC forum, if Elon is there, watch out for whatever he has in his pocket.
And on that note of caution, I bid you a fond ‘Adieu’