2015

Hi all, hope everyone had a nice celebration for new years.

So lets start off with the good news, look below to see how the world markets performed this year. This chart is not correct as it excludes the real star performer.

The definition of a developed market economy is that it must be high income, but this also includes openness to foreign ownership, ease of capital movement, and efficiency of market institutions.

As of September 2014, Dow Jones added Ireland to its list of 26 countries which are termed ‘Developed’. FTSE on 31st of December 2008, MCSI on 20 February 2015, Russell on May 2013 and S&P on September 2014.

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The staggering thing is that the best performing developed market on the planet is Ireland. The ISEQ20 went from 1088.05 to 1460.82. An unbelieveable gain of 34.26%. Nearly 3 times better than its nearest rival.

We would all think that this is because of the Googles and Facebooks but no its not, the list of companies in the ISEQ20 are simple straightforward companies like banks, materials and food. Maybe we just do things 3 times better than everyone else. If you think property is expensive in London or Paris wait till the Irish property market explodes again. A nice way to play this would be through the hotel sector with a company like Dalata(DHG:ISE). Its up 91.6% year to date.

We all probably know about Irelands small tax take but take a quick look at the chart below. When the US election takes place in November this year no matter who gets in there will be US tax changes. Expect a flood of American companies trying to repatriate for tax reasons to Ireland before November. Usually US governments do not put through retroactive legislation, so as long as your here you are ok for the future. This coupled with a probable exit of the UK from Europe will push companies to Ireland. As an example Credit Suisse are going to open their European trading centre in Dublin, relocating from London.

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Interesting changes in different regions. 

Europe: Greece -40%,   Poland -25%, Norway -19%.

The Americas: Brazil -44%, Columbia -42%, Peru -36%, Canada -25%

Middle East: Egypt -35%, Turkey -33%, Qatar -19%, UAE  -18%,             Israel +5.5%

Asia: Malaysia -43%, Thailand -25%, Indonesia -24%, Singapore -22%,     Taiwan -16%, Australia -15%.

Comments: Apart from the obvious, the Polish economy seems to be spluttering. Not sure why? For example Norway is obvious because of the fall in the oil price. As we predicted over a year ago Canada and Australia are in trouble. I don’t see this stopping but continuing this year. Israel’s economy is a light in a region consumed by hate and tribal rivalry. Now it has the potential of energy security with its huge Leviathan gas field(22 trillion cubic feet).

Currencies: 

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This year I expect the Chinese Renminbi to be devalued significantly and the US dollar getting stronger, especially if they increase interest rates again.

Anyone with significant capital in China will make renewed efforts to get it out. For this reason I expect Bitcoin to increase in value. As previously discussed I bought 1 bitcoin a year ago. It cost me 205 euros and is now worth exactly 400 euros. I have given up trying to use it in any  shop here in Ireland as the Bitcoin network is barely existent. What I did learn is that there are reliable banks being set up globally by established banking names which allow you to convert your Renminbi to Bitcoin in China. Get on a plane to London or New York and reliably convert it into hard cash ie $ and £. Forget about someone telling you can buy a coffee with bitcoin, its all about currency flows and evading established currency control networks. Yes it is a bubble and will not last forever but with increasing world wide instability and cash lying in banks in Bejing and Hong Kong that can disappear at the whims of some communist bureaucrat . Ask yourself, what would do?

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Now for the Bad News

The S&P500 made its first loss since 2008. Its had quite a run, 8 years! Ok it closed only down 0.7% but its still a loss! As I have said since July of 2015 we are in recession. I define this by momentum slowing on monthly timescales, a common measure is the MAC-D indicator.

From last months blog ‘I have outlined 3 periods over the last 20 years when it went negative, they were June 2000(Dotcom Bubble/Collapse), January 2008(Subprime Mortgage Crisis) and today as of July 2015. We can all argue about the value or relevance of technical analysis but one thing for sure is ignore this signal at your peril. I checked the DOW in 1929 and its monthly MAC-D went negative in October 1929!’

Whats Going On underneath the World Economy’s Hood?

Whats Really Bugging Me! 1 

I have a simple made up portfolio that tracks world transportation. I enclose it below. These ETF’s and companies reflect transportation worldwide whether by land, sea, air or truck. You don’t have to go too far to see a pattern here and its not good.

Worldwide Transportation

Now before we all start saying thats because of the drop in commodities prices and an oil glut. It still doesn’t add up. Because there is an oil glut there is no way to store the available oil but keep it in containers off shore, that is why oil tanker rates are at eight year highs and if your in this specialized area you are booming right now. The real problem is transportation of dry commodities, like copper, iron ore, coal and soft commodities like wheat and soy beans. the shipping rates for dry goods are down nearly 50%. As you constantly hear on the so called business press and TV there is a glut of ships and that is why there is a drop in the companies share prices. It still doesn’t add up for me. Below see the drop in the last 3 years in all shipping. Again you guessed it, its going down sharply.

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Below is a list of the biggest shippers of dry goods worldwide, again the direction is only going one way and thats down

drybulk-stocks

Now check out the graph below on the right hand side. It graphs the price of copper and the Baltic Dry Index. So as you would expect if copper goes down then the shipping index goes up as it has for a long time. They are usually inversely related, but now there is a major divergence, they are both going in the same direction. To me it signifies that the laws of supply and demand are not in play because of too much stored goods lying in warehouses with nowhere to go.

rates-vs-commod

Whats Really Bugging Me! 2

In the US high net worth individuals incorporate themselves and as such they have to inform the Securities and Exchange Commission where they have allocated most of their assets. Its called a 13F filing which individuals have access to delayed by 3 months. You can simply use the symbol IBLN. You don’t have to guess what companies they put their money into, they are the usual big names. In the US they refer to this as the Billionaire Index. This index is down over 6% in the year. So if the best and brightest can’t even match the S&P Index then has to be something going wrong. To me the number of Hedge funds that are closing up is irrelevant. Their fee structure is loaded so that they take 20% of profits in a fund so if they make no profits which a lot of them havn’t then its cheaper for them to shut up shop than work for nothing.

Whats Really Bugging Me! 3

Below shows a list of companies that have simply bought back shares. This makes sense because as soon as you repatriate profits to the US you are liable for tax so easier to keep the money off shore and buy back your own shares. This of course has the effect of increasing the price of the shares of the company. Stupid really but in the strange world of accountancy this is supposed to ‘add value to the bottom line’. If this isn’t smoke and mirrors then I don’t know what is!!!

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Sector Analysis

I’m briefly going to list some big changes through the year

 

Consumer Discretionary Global: Nike -34%, Fox -28%, Time Warner -23%, Amazon +119%, Starbucks +47%. Switch from conventional TV networks to the likes of Netflix

Consumer Staples Global:  Wallmart -28%, Imperial Tobacco +28%, Sab Miller +28%, Kinder Morgan -65%, Royal Dutch Shell -31%, BG Group +14%. Old supermarket model is dying everywhere. People shop daily not weekly anymore.

Finance Global: Banco Santander 35%, Berkshire Hathaway -11.5%, Goldman Sachs Group -7.3%, UBS Group +17%. Since 1990 over 25 years Berkshire has only had negative years 5 times. Last time was 2008.

 Healthcare Global: Valeant -30%, Novo Nordisk +52%, Allergan +20%, Teva +17%. The demographic trend is the big thing here, Novo are the worlds biggest supplier of insulin, based on childhood obesity they should have a good 50 years ahead. Teva are the biggest generic drugs supplier worldwide.

Industrials Global: Mitsubishi Corp -55%, Caterpillar -26%, Airbus Group +50%. Boeing +11%. Heavy machinery not needed as digging metals out of the ground is a bad business these days. The European Airbus is beating Boeing handsdown.

Materials Global: Glencore -70%, BHP Billiton -41%, Monsanto -18%, Syngenta +25%, Dow Chemical +13%. Glencore and BHP are bargains at these prices but could they drop further? Monsanto tried to take over Syngenta this year. Based on performance you can really see who needs who.

Technology Global: Hitachi -24%, IBM -15%, Google +47%, SAP +26%. Old technology plays like IBM were too slow to move to the cloud. Old hardware manufacturers like Hitachi have had their day.

Utilities Global: EON -36%, Veolia +49%. Messed up because of governments moving from coal. Whereas water supply infrastructure will become a winner in the future.

Telecommunications Global: Frontier Communications -30%, Nippon Telephone +55%.

Theme Areas

I am conscious that this is going on a little but briefly I would like to highlight the theme areas I believe will have a great future.

Robotics:  Adept Technology(ADP) is up 50% this year, Elbit Systems(ELBT) are up 46%, Kuka (KU2) +37%, Maytronics(MTRN:TA) +23%.

Cyber Security: In this area two Israeli companies are blazing a trail, Cyberark Software (CYBR) +16%, Nice-Systems (NICE) +14%.

e-payments: Optimal Payments (OPAY.L) +77%. For those less adventurous stick with Visa and Mastercard which are up 18 and 13% respectively.

3D Printing:  This area is a total disaster. Instead of looking at the charts like I usually do I allowed myseld be fooled by someone who infectiously sent me every possible bit of good news possible about this area. The reality was I let my heart rule my head and now admit my foolishness. When the 2 biggest companies 3D systems and Stratesys fall over 70% there is something going badly wrong here. Time for a re-boot here on this one.

Africa: The problem I found here is that most of the companies involved here are not publically quoted and the ones that are are mainly in the mining area and we know how this has done this year. On average its down about 10% which is not bad considering. The demographics are the key here. With nearly 60% of people in Africa working on the land this will change in the future. In the next 20 years it will be the only young continent on the planet with everywhere else having reached peak population.

Misallocated People

Hope everyone has a great 2016, regards, Pearse (pearse13@ymail.com)

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4 thoughts on “2015

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