Tick tock...is it all over?
First off, we have changed the name of our newsletter to better reflect the full scope of our commentary to UNHEDGED. Our objective is to provide broader coverage reflecting not only market conditions, but some of the underlying trends, especially in FinTech, that we feel will be of interest to you. .
Before delving into our commentary, one book recommendation for the summer: The Summit by Ed Conway. Well worth the read and will create strong sense of deja vu...does history repeat itself: yes.
That said, we continue to remain concerned about the overall condition of markets.
This week's NFP headline numbers will be the talk of the town, yet the underlying wage data will continue to confound the Fed. Quite simply, there is no wage growth and this belies a bigger problem.
The central bank liquidity trade remains in place. Pundits are underplaying the significance of the central bank balance sheet pare backs over the next 7+ years. What does this mean? A higher likelihood of nothing occurring again. Remember, if we were to be back on track the DJIA would need to be at 32,000+ to have pension systems back at break-even.
A lower VIX breeds complacency, and that sets up markets poorly for a systemic shock.
"There are no catalysts remaining, as the Trump slump is real," said one portfolio manager to us this week. That bears consideration: none of Trump's campaign efforts have happened despite a Republican controlled Congress.
"There are no market participants...just the Fed, the BOJ, and the ECB," said another prop desk head. "Why do you think Bitcoin has such volatility to it...central banks cannot buy it!"
Here in APAC we are witnessing an interesting phenomenon. Whist the giants like Ant Financial continue to make progress in FinTech, the ability for the startup community to get past a lukewarm A-round remains extraordinarily difficult. "There is a lack of true IP and scale into a fragmented market," said one VC on background. "The Asian dragons need only watch the innovation in the USA and replicate it to an APAC offering at massive scale leveraging off their existing platform user base."
It has been fascinating to me that there is virtually no investment banking activity, either fundraising or M&A, of any size/substance in the region. What we are seeing are small acqui-hires. It is all strangely reminiscent to me of the 2001 dot-com companies with more cash on their balance sheets than their market capitalization. Boards will start reviewing the viability of an exit and monetizing their initial investment(s).
I struggle with defining a continued rationale for a market bid. Instead, I hear of unsophisticated market participants stretching for yield/return and too many conversations about Bitcoin...
Here were my recent comments on CNBC. In short, be very very careful.
Our long term view has changed slightly in regards to equities:
- Long equities, with a focus on Europe and Asia
- Short duration (the infamous fixed income pivot)
- A weak dollar