Friday, May 04, 2012
A few years back TMM did their motorbike test with 3 good friends. Not so much because any of us had real aspirations to brave the London roads on a death machine but more along the male testosterone ability/one upmanship lines and having another licence to display next to our diving / parachuting / marksmanship / racing driver / kick-box instructor / ski guide / golf pro / astronaut cards (if only). Doing the accelerated "know nothing" to "full licence" course required a basic knowledge of bikes and so we didn't really get off to the best of starts when our instructor's first instruction, once we were mounted on our 50cc starter bikes, was to "just let in the clutch and ride 10 feet forward". One of us did what looked like an "emergency accelerate", careering off into a fence. Our relationship with our 22 stone bigot of instructor never really recovered.
There were various fond memories, including when he pulled us over to the side of the road "Right lads ..take a look around .. As a road user what is the main hazard you would be most wary of" TMM Reply - "The four blokes standing in the road in "trainee motorcyclist" vests looking around aimlessly?"
But the highlight, if you will excuse a very rambly start, was when Mr Unpleasant asked us "Do you know why the Harley is called the potato"? No? "Because the noise it makes is "potato potato potato potato"". To which TMM replied, bearing in mind the motorbike the instructor rode, "Ahh! that will explain why the BMW1200 is called the "Kerwang"". He just looked confused as his instructees broke down in mirth.
And THAT, dear reader, leads us back to these markets (we hope you have worked out the kerwang reference by now) because TMM are feeling like a bunch of kerwangs, Either that or everyone else is. But invoking the old dinner party adage "If you cant work out who the wanker is, it's probably you" it must be us. April and now the short start to May have evidenced this. We just need to look at our P+Ls and the carnage inflicted upon them.
So what is making us kerwangs?
Our views on Europe? Because we cant see what everyone else can in Europe? They are in recession Ok, but we are not about to lose the Euro. But we are being undermined by good old fashioned non-binary economics with the slew of rubbish PMIs. Rubbish but still not a complete disaster. At the aggregate level eurozone composite PMI is still only implying about -0.3% Q/Q for Eurozone GDP which is obviously not great, but it's not enough to drag the rest of the world down. TMM think you'd need to see -0.5 to -0.6% QoQ for it to start having an effect. The key thing is not to be paralysed by the shock value of Spanish or Italian PMIs on a low 40-handle. These are not surveys with a particularly long history they likely have the same X-12 2008/9 crisis echo problem with their seasonality and as they only go back to mid-2005 there are not enough crisis-free points to actually figure out a seasonal adjustment factor that is "clean" (like the NAPM have done for ISM). Finally, it is worth pointing out that the "50-level" does not correspond with 0% GDP even if that is what some lazy interpreters would like us to believe.
Our views on commodities? We note the recent dump in materials, largely due to an emerging consensus that QE or not, with supply situations improving in base metals and bulks the best days of the sector have come and gone. TMM think this is about right and while gas heavy diversified companies BHP and XOM may pay nice dividends and have upside, the days of making notes punting small cap ASX names is largely over. We are short coal, copper and silver. QE doesn't matter for anything (except gold) when fundamentals are this strong for the sell side. Perhaps iota has already started. - The UK FTSE underperformance today despite peripheral Europe gains is nearly all due to the basic materials sector.
Our views on Equities? Super cycle - bond and commodity markets on the wane and equities to lift off as the next "whowuddathoughtit" parking bay for all that cash. Earnings this season at 8% against expectations of 3%. An underlying support from either QE from someone, or growth that will preclude the need for QE. A new bias to go for stimulus in Europe. Thie isn't 2011 its more like 2009. The real money sector paranoid about downside risks and already hedged. That's it basically.
Perhaps we are just kerwangs for even being in this business. TMM have seriously started to consider how they can get public sector jobs. Cleaning road bollards for a south London council seems infinitely more attractive than dealing with half of the kerwangs in this industry.
We wish you a happy long weekend if you are lucky enough to be having one.