market commentary

The World In A Week - Snakes And Ladders

Some elements of investing can be a zero-sum game.  When one side of an investment gains, the other side loses.  For those investing in GameStop, the profits made when the stock went up was reflected in the losses made by the hedge funds who were betting on the stock going down.  It is all well and good when the dice roll means you land on a ladder, but it is not so pleasant when you land on a snake.

So, it would appear that the Reddit bubble has burst and there will undoubtedly be some pain for those individuals who entered the battle late.  GameStop’s share price started the week at $316.56 and finished at $63.77, representing an almost 80% drop for the week, still significantly above its 52-week low of $2.57.

From a psychological perspective, we hope that these speculative episodes do not deter true investors from taking appropriate risks for their long-term investments, as they do not affect or influence our robust investment processes.

In a world that is waiting for vaccinations to inoculate sufficient people in order to ease lockdown restrictions, knowing that central banks and governments are still committed to providing liquidity and stimulus is critical.  This was underlined in the Bank of England’s Monetary Policy Committee minutes last week, where they explored the possibility of negative interest rates.  However, it was stressed by Governor Andrew Bailey that while we should expect the Bank of England to have investigated all monetary options, he did not want to send any signal that it intended to set a negative bank rate at some point in the future.  It is also clear that President Biden wants to reassure the US people  by pushing ahead with the latest instalment in a long line of fiscal stimulus plans.  The $1.9 trillion economic relief plan looks set to be pushed through, with or without the support from Republicans.

It seems that “doing whatever it takes” is the modus operandi for most central banks and governments during this pandemic,  and the originator of the phrase has returned to the political spotlight.  Former President of the European Central Bank, Mario Draghi, who adopted the phrase in 2012 to give reassurance that the Eurozone would not crumble, has been asked to head up the Italian government.   Can he repeat his success as Super Mario and stabilise a faltering Italy?

The final person sliding down the gameboard is Jeff Bezos who announced that he will be stepping down as Chief Executive of the world’s largest e-commerce retailer.  Climbing a ladder to fill those shoes is Andy Jassy, who was heading up Amazon Web Services and will have a big plate to deal with once the pandemic has receded.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete.  Unless otherwise specified all information is produced as of 8th February 2021.
© 2021 Beaufort Investment. All rights reserved.

market commentary

The World In A Week - GameStop & Match

Well, who would have thought a small US bricks and mortar video retailer would grab the attention of the world? As we keep seeing of late – expect the unexpected! We’ve not heard the term David vs Goliath being used as yet, but we’ll coin it!

GameStop is the company in question.  A company sitting in a very precarious financial position and being heavily bet against by the hedge fund firm, Mervin Capital.  Then, in step many private investors, fueled by social media chat on sites like Reddit, have protected the company from the “bully boys” of Wall Street. Well, what have we seen? The share price rocket over +900% this year, even though the stock price took a -70% hit on Thursday.  A company in the abyss worth less than $1bn a few weeks ago, suddenly skyrocketing to a market cap over $25bn, is simply staggering! The plot continues to thicken – industry watchdogs and regulators are warning about market abuse and potentially looking to step in. The trading platform that many ‘Redditors’ use to transact Robinhood Markets has stopped taking trade orders on the stock, with many private investors now crying foul – why can hedge fund managers do as they see fit, but mom & pop can’t? Lawsuits are being threatened, but Robinhood has probably taken the right moral action, to stop the same investors losing their shirt, as highlighted by the stock price fall on Thursday.  At the same time Robinhood also had to go looking for a cash injection itself, as they had to put up the collateral for these trades after they got so big!

Why should we care? Is this a real attempt to rescue the company or David trying to lay one on Wall Street Goliaths, and why if that’s the case? Woolworths, C&A, Blockbuster are just a few high street names that have fallen by the wayside.  Why? Because the model had stopped working and demand shifted elsewhere. However, is this whole episode significantly more profound and a reflection of the failures that lead to the Great Financial Crisis, and the widening social and economic gaps that continue to persist under capitalism. Will this be a watershed moment?

What we have seen over the last few months is that global economic data has been much stronger than forecast, which highlights the ability of humankind to adapt (or bouncebackability as they used to say on Soccer AM) in the face of adversity.

In other news – there continues to be mud-slinging in Europe over the slow and unequal rollout of the vaccines, we’re sure many Brexiteers are sitting there saying “I told you so!”.  Finally, the AstraZeneca vaccine has been given the approval in Europe, and the Novavax vaccine shows 89% effectiveness in UK trials. Normality may return…..

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete.  Unless otherwise specified all information is produced as of 1st February 2021. © 2021 Beaufort Investment. All rights reserved.

market commentary

The World In A Week - Bitcoin & Other Video Games

Markets were broadly positive last week with the MSCI All Country World Index (ACWI) of global stocks up +1.0%, giving a return of +3.2% for the year to date.  In a slight reversal of the trend which started in Q4 last year, we witnessed expensive markets such as the US and China outpace cheaper markets in the UK and Europe.

Beyond the rather sedate market-level movements, the week saw the continuation of some truly bizarre single stock activity.  Shares in video game retailer GameStop surged +80% on Friday, as amateur traders coordinating on the online message board Reddit used stock options to trigger a “short squeeze” in the stock.  This caused the market capitalisation of GameStop to rise from $1.3bn at the end of 2020 to $4bn.  GameStop is lossmaking, reporting a -31% drop in sales in December 2020 and is a brick-and-mortar retailer which is facing digital disruption.

In the US, equity options’ trading volume on retail platforms such as Robinhood has exploded recently as punters funnel their stimulus cheques into highly speculative bets.  This has been concentrated in a handful of names such as the FAANG stocks, Tesla and a series of other tech and biotech names.

Another market that continues on a wild ride is of course Bitcoin and the wider cryptocurrency market.  Bitcoin rose 4x vs the US Dollar between October last year and January 2021, before falling -22%.  For an asset which is touted as a replacement currency, we struggle to understand how something so volatile and speculative serves as a store of value or medium of exchange.  While it has been interesting to witness some multi-asset investors adding Bitcoin to their holdings in the last year,  Beaufort Investment is not in the business of adding things it does not understand to our client’s portfolios.

These developments continue to give the Investment team cause for a certain degree of caution that speculative excesses are building in certain areas of markets.  Conversely to this, it is likely that fantastic opportunities for future returns reside in the more unloved and unglamorous areas of markets.  Now is the time to employ significant selectivity and nuance to one’s investment approach.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete.  Unless otherwise specified all information is produced as of 25th January 2021.
© 2021 Beaufort Investment. All rights reserved.

market commentary

The World In A Week - Cheque Mate

The political situation in the US continued to dominate the news headlines last week with President Trump impeached for the second time during his term. National Guard troops have been deployed to Washington D.C. amid safety concerns regarding the upcoming inauguration of President Elect, Joe Biden, taking place this Wednesday. President Elect, Joe Biden has announced his plan to issue a subsequent stimulus package, amounting to $1.9 billion to boost domestic consumption and this will include $1,400 stimulus cheques and $350 billion in state and local aid. He has also proposed to raise the minimum wage to $15 per hour and has encouraged widespread adoption of the vaccine which has started to be rolled out across the US.

Restrictions tightened further in the UK, with travel corridors closing until mid-February to restrict the spread of the new COVID-19 variant. Any travellers arriving at UK borders must provide evidence of a negative test in the preceding 72 hours.

The UK economy declined by -2.6% in November, with high street shops and restaurants being forced to close with the tiered lockdown system in place. This was still way ahead of expectations, but November’s decline was a clear example of the economic impact caused by a lockdown given the prior months of May to October all generated positive GDP growth as the country phased out of the national restrictions. The UK is a service dominated economy and the transition to a more resilient remote working environment has been successful, enabling more companies to trade effectively during the pandemic. However, following the national lockdown imposed in December by Boris Johnson, the likelihood of the UK entering a double-dip recession is high, should we remain in full lockdown for the next two months.

Elsewhere, China’s economy expanded 6.5% in Q4 of 2020, amounting to a 2.3% annual GDP growth in 2020 with the International Monetary Fund predicting that China will be the only country to experience growth at all. China’s economic growth figures have historically faced scrutiny over their reliability. However, the country was quick to react to the virus and has benefited from being a strong exporter following the trade deal agreed with the US.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 18th January 2021.

market commentary

The World In A Week - White House Down

Not to be outshone by its predecessor, 2021 gave us an unexpected first week of the year.  Politically, this was going to be an important week in America.  We had the final two seats in the Senate being contested, and if the Democrats could overturn the incumbent Republicans, it would give President Elect Joe Biden a clean sweep and potentially give his administration a greater chance of pushing through changes, such as climate change and healthcare reform.

The Georgia election, where the two seats were being contested, had to be rerun as none of the candidates in the election in November had achieved the 50% needed for victory under state rules.  So, on Tuesday the people voted, and the Democrats secured the final two seats in the Senate, giving them an equal number to the Republicans at 50 seats each.  This gives the Democrats full control of the Senate, the House of Representatives, and the White House, for the first time since 2009.

How does an equal split of seats in the Senate give the Democrats control?  The incoming Democratic Vice-President Elect, Kamala Harris, will preside over the Senate once she takes office and in the event of a tie, she will have the all-important tie-breaking vote.

Both votes in Georgia were extremely close, with the winning margins being 50.7% and 50.28% for the two seats.  As you can imagine, this stoked the ire of President Trump, who continued to make unsubstantiated claims for electoral fraud.

What happened is unimaginable outside of a Hollywood blockbuster.  Shortly after hosting a rally outside of the White House, hundreds of pro-Trump protesters pushed through barriers set up along the perimeter of the Capitol, where Congress were meeting to confirm Joe Biden’s election victory.

The pro-Trump supporters stormed the Capitol building, while those inside either took shelter or were evacuated.  In the melee four people died and scenes of windows being smashed, and doors being forced open, were broadcast around the world to a stunned audience.  The finger of blame was pointed squarely at President Trump for inciting this violence, through the rally and his subsequent comments on social media.  Facebook and Twitter took steps to block President Trump and his accounts were, and remain suspended.

This has resulted in a push by Democrats to impeach President Trump for an unprecedented second time.  A motion will be introduced today, calling on Vice-President Mike Pence to strip President Trump of his office.  If Mike Pence refuses, then the Democrats plan to vote to impeach President Trump later this week, which would make him the first president to be impeached twice.  There are conflicts within both parties on the best way to resolve this crisis and while President Trump’s resignation would be the best possible solution, it is unlikely that this will happen.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete.  Unless otherwise specified all information is produced as of 11th January 2021.

market commentary

The World In A Week - “That’s All Folks!”

As Michael Caine famously said in the iconic movie The Italian Job, “You’re only supposed to blow the bloody doors off!” Which seems to sum up 2020 well – it’s not what we wanted, not what we expected, and the ramifications keep rumbling on. Still, we are now into a new year, and surely 2021 cannot be as bad, unpredictable, or as turbulent as 2020. We have several vaccines approved that are starting to be rolled out, and central authorities are throwing sums of money around that belittle the policies instigated to address the Great Financial Crisis.

What else? Oh yes – after much tedious toing and froing we finally have a trade deal between Europe and the UK. What does it amount to? Well probably a small portion of what we had when we were a member of the EU! Still a deal is better than no deal, and the initial market reaction seems to have been taken well. However, the banking sector continues to be under pressure with persistent worries about the impact of the Coronavirus Pandemic on the global economy, or it could be extrapolated that lack of agreement on financial service equivalence in the Brexit deal, is really what’s driving negative sentiment towards the sector. All will become clear in time.

But let us get back to the positives – we have the vaccine rollout, which is generally providing a fillip for markets, and President Trump has finally signed-off the fiscal package for pandemic relief in the US providing a further positive driver.

As regards to 2020 I think we should sign-off in the words of Bugs Bunny “That’s all folks!”

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete.  Unless otherwise specified all information is produced as of 4th January 2021.