Comment of the Day
25th January 2023
Video commentary for January 25th 2023
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: near-term scope for rebound versus medium-term challenges, meanwhile emerging markets,gold and miners remain firm.
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Private Equity's Loved Assets Turn Problem Children in Downturn
This article from Bloomberg may be of interest to subscribers. Here is a section:
“In terms of just the macro and company performance, I think it will be much more muted as people capture the inflationary pressures,” he said. “Private equity M&A activity I think will be dampened.”
Concerns around portfolio company performance were not the only challenges up for discussion in the south of France, with private equity firms struggling to secure the debt financing they need to do big deals and juice returns and facing more competition when raising funds.
The chief economist at German insurer Allianz SE (OTC:ALIZF), Ludovic Subran, said the industry had “nowhere to hide” when markets turned last year. “The private equity world has not been immune or has not defied gravity,” he said.
Banks pulling back from lending on buyouts was described as a “new reality” by Francois Jerphagnon, head of Ardian Expansion, in an interview with Bloomberg TV. This will open up an opportunity for private credit funds to step in, others said.
“There is much more interest in private credit and infrastructure where you do have that hedge against inflation and that hedge against rising rates,” said Richards at Pantheon.
Blackstone’s Eapen said private credit providers are in “the middle of a golden age” and that last year had been one of his business’s biggest ever for deploying capital.
Eoin Treacy's view
After the credit crisis, the vindictive wish of anyone who lost money in the crash was for banks to go broke. At the very least everyone concluded they needed to be heavily regulated. Today the burden of regulation is heavy within the banking sector and we are in our 15th year since the crash.
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Morgan Stanley (NYSE:MS) IM Says the Decade of Emerging Markets Has Begun
This article from Bloomberg may be of interest. Here is a section:
“Every decade, there is a new leader in the market. In the 2010s, it was US stocks and mega-cap tech,” Kandhari said in a phone interview. “Leaders of this decade can clearly be emerging-market and international stocks.” Morgan Stanley IM has $1.3 trillion in assets under management.
The asset class has had a strong start to the year, with the MSCI emerging-markets index soaring 8.6% compared with a 4.7% advance for the US benchmark. The gains come as China’s pullback from its strict Covid Zero policy brightens the economic outlook, while investors position for the end of aggressive central bank interest-rate hikes. Many also still see US stocks as expensive, with those in emerging-markets trading at a nearly 30% discount.
There’s a growing disconnect between US’s shrinking share of the global economy and the size of its stock market capitalization, Kandhari said. Along with fund allocations to emerging-markets that are well below historical averages and inexpensive currencies, that gives them a lot of room to outperform, she said.
“What really drives this asset class is the growth differential, and that growth differential of the EM is improving relative to the US,” she said.
Eoin Treacy's view
The risk of a US recession is increasingly being priced into equity markets. At the same time, China has just exited its three-year quarantine. US money supply is now negative on a year over year basis for the time. China is boosting monetary and fiscal support for its markets. Even with arguments about trade wars and competing systems, it will still be easier to make money in China this year.
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Jeremy Grantham Warns of a 17% Plunge in the S&P 500 This Year
This article from Bloomberg may be of interest to subscribers. Here is a section:
Grantham views the process of further stock market pain playing out now as similar to the popping of bubbles following other rare “explosions of investor confidence” such as in 1929, 1972 and 2000. While many are attributing last year’s slide in stocks to the war in Ukraine and the surge in inflation, or reduced growth from Covid-19 and ensuing supply chain problems, Grantham believes the market was due for a comeuppance regardless.
While the first and “easiest” leg of the bubble’s bursting is over, Grantham says that the next phase will be more complicated. Seasonal strength in the market in January and during the current period of the presidential cycle could keep the market buoyant in the early part of the year. “Almost any pin can prick such supreme confidence and cause the first quick and severe decline,” he wrote. “They are just accidents waiting to happen, the very opposite of unexpected. But after a few spectacular bear-market rallies we are now approaching the far less reliable and more complicated final phase.”
Eoin Treacy's view
I was at dinner last night with some very successful elderly investors who chastised me for being too bearish. Their contention was that the lows were posted in October and the market always bottoms ahead of earnings. So let’s consider the argument that the October nadir is unlikely to be exceeded.
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Eoin's personal portfolio: trading short breakeven stop triggered January 20th 2023
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.