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Blame the Hot Money

US markets continue their bullish trend. BFM 89.9 asks Tony Nash if this is due to better than expected corporate earnings in the coming quarters or the Fed monetary policy. Also discussed are the OPEC+ oil production and how oil will be affected by hurricane Ida, and what’s the status of supply chain specially around semiconductors?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/blame-the-hot-money on September 2, 2021.

 

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Show Notes

 

WSN: We speak to Tony Nash, CEO of Complete Intelligence. Now, US markets, I think it’s a bit of a choppy day, but still, nonetheless, the trend is bullish one. And what is that based on, though, is it expectations of stronger corporate earnings this quarter or just driven by ample liquidity flooding financial markets?

 

TN: I think more the latter than the former. We saw really good corporate earnings in the previous quarter, but in the current quarter, we’re hearing more rumblings of trouble with earnings. And that’s part of the base effect in the previous quarters, in 2020, companies had cut a lot of costs late in the year, so they’re reaping the benefits now. We’re starting to see the base effects come in where they had already cut a lot of those expenses in Q3 of 2020. So now we’ll see that going forward, we won’t see as much kind of profitability.

 

So what’s the baked into the market right now? It’s the Fed, it’s stimulus. It’s an expectation of a $3 trillion fiscal stimulus bill. So if we start to hear that this $3 trillion fiscal infrastructure bill won’t happen, we’ll see some disappointment if we see the jobs numbers on Friday come in disappointing, we’ll see some dampened momentum. And if we hear any more talk about tapering, which I don’t think we will for at least six months. But if we do, we’ll see some downward pressure in the market.

 

So all of those things are possible. But in the meantime, the Fed is injecting $120 billion into the market every month to keep everyone happy. And markets seem to be taking it well.

 

WSN: And I want to stay on corporate earnings, because I just wonder whether the recent inflationary pressures on the economy will be reflected in perhaps lower margins for corporate’s incoming quarters.

 

TN: Sure, companies are feeling pressure not just with raw materials and input factors, but also with salaries. Wage inflation in the US is pretty high right now. Companies are feeling it from all sides. So I think those margins are much thinner, both on those base effects I mentioned earlier. Also inflationary effects, both in terms of input goods and wages.

 

PS: And you say you paint a bit more cloudy picture for the US, but if you compare the US economy and financial markets versus Europe and China, they really have outperformed global peer strike. Could you explain it disparities there?

 

TN: When you look at China, I think it really has a lot to do with stimulus. China is really late to the game in terms of providing stimulus. They spent quite a long time in 2020 and 2021 deleveraging their economy. So getting rid of debt. Very procyclical. China was shrinking and they were delivering, which is maybe healthy for the balance sheet, but not necessarily the best thing to do to grow the economy.

 

In Europe, the ECB is really nervous with inflation. And so they may take more aggressive action against inflation instead of continuing to loosen to accelerate the economy. So the US is outperformed because nobody thinks the Fed is going to take aggressive action year, certainly. And probably not at least until Q two of 2022.

 

WSN: And how do you think the US dollar will react against the Euro and the yen in light of all these recent FED announcements on the timing of the tapering and also the rate hikes?

 

TN: We have the dollar continuing to weaken through, say, November. And we’re starting to see some expectations of dollar strength, not a lot of strength, but marginal dollar strength starting in, say, November. And that could be on, say, ECB deciding to continue to loosen. It could be on China. Adding stimulus. Currency is a relative game. As central banks get more active globally relative to the US, it could really help weaken their currencies on a relative basis.

 

PS: And let’s talk about oil because I want to get your views on yesterday’s OPEC+ meeting. They are sticking to next month’s  oil production increases. What impact will that have on prices in view? There also Hurricane Ida has also hit US or production?

 

TN: Yeah. Well, he can. It has fit some under sea production, but it’s really hit more refining capacity than really production. So the bigger issue in the US is around gasoline prices and refining, than it is around kind of supply of oil with OPEC+, it’s kind of a status quo. Let’s move ahead as we had expected, which is a really good sign. Look, oil is trading between what, 67 and $75 generally, and that’s kind of their happy. So as long as it stays in that zone, OPEC will continue to move ahead and stay within the agreement. If it goes higher, then they may accelerate the production. If it goes lower, they may pull back a little bit.

 

WSN: And let’s stay on supply side disruptions. Right. We talked about that just a few minutes ago. But do you think that there are still concerns over this, especially for things like semiconductors and certain commodities?

 

TN: Oh, yeah. Absolutely. So the supply chain issues, we hear a lot about Chinese ports and backups to Chinese ports and these sorts of things. But the Port in Long Beach in the US is backed up, hugely backed up. So the supply chain shocks are not only in China. US ports have their own issues. So when I hear, say, American companies complain about supply chain issues in China, that’s not the only factor. It’s US ports catching up. It’s US ports that are delayed and so on and so forth.

 

So I don’t think we’re done with this. In fact, it may get a little bit worse because the holiday season is coming up in a few months. And if we think supply chains are backed up now, they may get even worse going into, say, October and November, especially to import into the US.

 

PS: I mean, some are even saying that this could even go on to, quarter 1, ’22 or even the likes of semi cons.

 

TN: Oh, absolutely. Semiconductor supply chains are incredibly complex. So for them to get out of these issues, there are multiple layers of issues that have to be reconciled, and it could easily be Q1 ’22 by the time we’re out of this.

 

WSN: All right. Thank you for your time. There was Tony Nash. CEO of Complete Intelligence, giving us his views on where world markets are hitting. And I think the interesting point is that, look, the bullish trend is here to stay as long as the Feds just keep rates where they are. Plus, of course, there are expectations with regards to the US stimulus plan on the infrastructure bill. Right. Which I think is now going through the House. And apparently there’s something like 700 amendments that the Republicans want this document through the Max.

 

PS: I know, but I think they are optimistic. I hope to prove this call in October, but Tony does point relatively bleak picture for the short term. September. October is also seasonally weak in the US and also the stimulus packages or end or swim September. Very interesting. What he’s saying about the Fed is not likely to say much about tapering for the next six months as well.

 

WSN: Yeah.

I mean, if you look at where markets are right. The S&P 500 is up 20%. The Nasdaq are almost close to 19%. The Dow Jones is 16%. If I was a fund manager, I would do nothing. In fact, I might be tempted to lock in my games. Right. Because the year is almost coming to a close. Do I want to take on more risk for the potential return of two? 3%, maybe not. So we might be heading into quieter months for at least one or two, maybe towards year end, and then we might see some book closing.

 

But till now, maybe everyone’s just taking a bit of a breather. Look at markets, at what kind of corporate earnings will be coming out, and let’s see where the politicians are up to.

 

PS: And I wonder whether there’s an opportunity to reallocate to other markets in Europe where you see some value and even Southeast Asia as well in the midterm long term as well, for sure.

 

WSN: I’m sure Financiers already considering the Strategic allocation for 2022 Actually and rotating into markets that perhaps did not do as well this year. Stay tuned. BFM 89.9.

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QuickHit

Sentiment has soured: How will governments and companies respond? (Part 2)

Sentiment has soured: How will governments and companies respond? (Part 2)

In this second part, Sam and Marko discussed possible tapering, what can the government do to help private companies, how the consumer sentiment is looking right now, what should you do with your investment in this Delta variant scare? Are vaccines really effective? And what is this thing that the Biden administration needs to do right or they’ll be dead?

 

Please go here for the first part. 

 

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This QuickHit episode was recorded on August 19, 2021.

 

The views and opinions expressed in this Sentiment has soured: How will governments and companies respond? (Part 1) QuickHit episode are those of the guest and do not necessarily reflect the official policy or position of Complete Intelligence. Any contents provided by our guest are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

Show Notes

 

TN: Sounds like both of you agree that China is going to do more stimulus. I think they’re late. I think they should have started five or six months ago. But better now than never. Right. So it sounds to me like you believe that there will be the beginning of a taper, maybe a small beginning of a taper late this year. Is that fair to say?

 

SR: Yeah, I think it’s fair to say that there will be some form of taper. Okay. I don’t know, even if it’s just rhetoric, as we move into 2022, at least with what we know right now, I don’t think they should. But what I think they should do and what they’re likely to do are two wildly different things.

 

TN: So even if it say 10 billion a month, which is nothing compared to the entire kind of stimulus, monetary stimulus are doing right now, that would have a dramatic sentimental chain. Is that your view?

 

SR: Yes. So it’s all about that incremental change in Cinnamon. It’s not about the incremental change in the addition to the portfolio.

 

TN: Right. Marko, are you the same? Do you think there’s a change in the sentiment of the Fed and there’s going to be a move toward tapering late in the year?

 

MP: I mean, I think tapering happened in June at the FRC meeting. And so that’s… Because that’s when the Fed incrementally turned hawkish. The DXY dropped quite significantly after the meeting. So I think that the risk in your view is that a lot of the things that we’re talking about right now have been slowly priced in over a period of time. And while oil prices and S&P 500 haven’t really corrected to this view reality. You know, so S&P 500 is reaching a new high, except for the last two days. Oil prices have started to come down finally.

 

 

 

 

Brent Crude Oil
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Now the 10-year has actually been pretty stable through the last couple of weeks worth of volatility. And that tells me a couple of things. I think the bottom market price, a lot of the things we’re talking about already. The second issue is that fiscal policy is really tricky when we talk about it.

CBOT 10-year US Treasury Note
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And here’s what I mean. 1953 we had a fiscal cliff recession after the Korean War. But that’s because the fiscal cliff was very clean, very simple. We spend a lot of money on bullet casings and tanks and airplanes during the Korean War, and then that fiscal spend stayed on the Korean Peninsula. We couldn’t take it back with us in 1953. In other words, we got a fiscal cliff recession.

 

This time around, the 1.9 trillion, you know, fiscal stimulus we had earlier this year, that actually, in a curial mathematical terms, shows up as a huge fiscal cliff next year. But that actually lives on on household balance sheets. And so that’s where I would say that like, let’s see how the Delta variant issue resolves itself, because in one month, here’s what I know.

 

I know the savings rate in the United States, the personal savings rate is still elevated at 9.6%. I know that revolving credit is going through the roof, and the households are re-leveraging themselves in a way that they have it for ten years. The US consumer is acting in the ways they acted in the 90s and 2000s.

 

If you look at household debt, percent of GDP, you got this long period of deleveraging for the past ten years. And now it’s coming back up. And so to me, that’s where I think the fiscal cliff of next year is overstated. And the reason that even a ten year fiscal package matters is because you’re talking about a ten-year bond. If I’m going to hold a ten-year bond, that on the back end of that 10-year, there is Trump tax cut level of unnecessary fiscal stimulus.

 

Let me say that again, what this fiscal spend right now is going to produce a similar procyclical fiscal thrust that we had during the Trump administrations in the last two years, through doc cuts, this time through infrastructure spending. That’s going to create a modest fiscal thrust, positive fiscal thrust for the duration of the asset that you’re holding. And I think that the market will still have to respond to that, even though next year there’s no way to avoid mathematical fiscal flip.

 

TN: Interesting. So. All of these things together, just going back to the reason I initially contacted you guys. I was hearing companies telling me that their Q3 revenues were really, they were downgrading them, and they’re really worried about their performance in Q3. And I think we’ve seen that or I’ve seen it anecdotally.

 

We saw tourism not necessarily be what we thought it would be. We’ve seen a lot of things happen that we didn’t really think would happen over the summer or not happen that we thought would happen. So how are you seeing these policies or how do you expect these policies to manifest at the company level? And when do you expect them to help companies to move forward?

 

MP: Well, I don’t think any policies will help companies. I think what will help companies is once Covid cases go down, and people kind of stop being afraid of the Delta wave.

 

Right now, if you look at hotel stocks. Hotel stocks are back through, like November 20th level, like they’re back to pre-Pfizer result levels. And I think that that’s a great investment opportunity. I would be long COVID place right now because, you know, the data from Israel, the data from Iceland, the data from a lot of different places that are fully, almost fully vaccinated are pretty clear, which is that vaccinated people can absolutely get Covid, and very few of them have adverse effects. The efficiency is actually at very high levels. A lot of people misinterpret, a lot of people… Sorry, the media is misinterpreting the data. And once you account for age disparities and so on, the efficiency here is like in the 90s.

 

TN: So it’s amazing.

 

MP: Yeah. Look, it’s a simple fact. Now that’s going to take some time as Sam said, I think that’s going to be articulating the data for the next month. I think that you have a great entry point into the Covid place right now. And I don’t think that any of the policies we’re really talking about are going to have much of an effect on earnings over the next quarter.

 

TN: I’ll give you a data point that I was looking at earlier today. Texas right now has the same number of cases that it had in Feb of ’21. Okay. But the daily fatalities are 60% lower than they were in Feb. Okay. So the case counts are just as high, but the fatalities are dramatically lower. And that’s good news, right.

 

Texas Covid cases and fatalities

 

MP: Look, Tony, I would study really the case of Israel, because if you study the overall numbers in Israel, you come up with a figure. I think it’s 60% effectiveness for Pfizer, which is lower than advertising, but that’s actually a mathematical concept called a Sisyphus paradox.

 

And what’s happening is that we need to segregate the different age cohorts not just average them together.

 

TN: That’s right.

 

MP: You know, because the elderly tends to be more vaccinated. You have a larger pool of older people who tend to have received a vaccine. They also tend to go to a hospital more often with a respiratory disease, even though they’re vaccinated.

 

So you can’t just average everyone together. The actual vaccine efficacy is in the 90s for all cohorts. Except in the 80s for some of the much older, over 80. It’s, like, about 80% effective. And so, yeah, I think a lot of this is… You know where I want to compare Covid to? And I think Sam will appreciate this. I compared it to the Euro area crisis.

 

You could have made a call in 2010 that this thing was over. Like once Germany like bit the bullet and bailed out Greece the first time? Like it was over, guys. But every time a new country showed up, he was like, Whoa. Here goes Portugal. Oh, my God! The world’s gonna end! And it’s like, similarly COVID, like, we know where we’re headed. Like, every wave is gonna cause sentiment issues and so on. But I would just bet against those.

 

TN: That’s a good call. I like that. I like the optimism there, and I like the perspective there. I think that’s really interesting. Sam, what do you think?

 

SR: I think there’s a combination of two things. One, I think Marco is 100%, right? That this is an awful lot like the Euro area crisis. Every single time, like Greece was the first big bang. Then you had the ripple effect to Portugal. Then it was Spain. And everybody was wondering what the next set of fall was and had the correction of 2011. That was fun. You had these longer term kind of ripples.

 

I think there’s going to continue to be ripples this time around. And the question is in my mind, it’s really difficult to predict what people sentiment around those ripples are going to be. I think we can look through them for the next five to ten years and say it’s all going to be fine. This is the way it’s going to play out.

 

The real question is, how does the American consumer mindset, how does that actually grasp this ripple to move through it? And how does China react? How does Europe react? Right. There’s a number of factors that play in here, but I think the really difficult and maybe not as priced in as they should be. To Marco’s point. I think this is a really long term, very strange kind of predicament that we’re in where vaccines are really good. They work really, really well.

 

How do people’s minds begin to grasp it? And do they begin to look through? We get the higher vaccine rates? Do we really power through this in a meaningful way, very, very quickly, or does it continue to be highly volatile on the consumer sentiment front? Because if consumer sentiment continues to fall, it’s going to be a big problem for the back half of this year. And that I mean. It’s kind of…

 

TN: We’re right there at the back there in the back half of the year, right? That. This is a terrible time for consumer sentiment to fall because we’re at the precipice of kind of holiday season buying. Not quite there yet, but if it stays for two more months, it gets pretty bad.

 

SR: It does get pretty bad. But I think this is also one of those points that I think could really be a tailwind to Marko’s earlier comments about fiscal stimulus and fiscal stimulus being higher than anticipated. You continue to have consumer sentiment fall. You continue to have people fearful of Delta, you have a couple of bad job prints, and all of a sudden you’re going to have much higher fiscal spend. You’re going to have a very dovish Fed.

 

TN: Right.

 

SR: I think that’s the risk to call it “the market.” That’s the risk to kind of my side of Marko and I’s bet is if all of a sudden this fear actually really ingrains itself within individuals, it’s going to be a huge, huge issue as we move into the Christmas buying season for companies, Christmas buying season for consumers, and you’re going to get big checks written out of Washington, regardless of the geopolitical situation, regardless of whether or not people want to say Biden might be lame duck because of Afghanistan, etc.

 

All of a sudden you’re going to have a Fed that’s very concerned, thinking it was a ripping economy with incredible inflation that wasn’t going anywhere. You’re going to have them reverse very, very quickly. You’re going to have senators on both sides of the aisle very concerned that they just, they might get blamed for a recession.

 

It’s going to be a really interesting queue for.

 

TN: It is.

 

MP: That’s why it’s a dynamic environment. Right. And and what I would say is like, look, I have certainty on the Delta wave. Certainty. Every wave we’ve had has crested, other than in emerging markets because their testing is poor. So it’s actually a mega wave that we constantly think is over, but it isn’t.

 

In the US we know how the story plays up. We know it. It’s a four to six week wave. The challenge here Tony, is that we’re talking in the middle of this wave. We have probably another two to three weeks of upswing, and then we’re going to have a down swing in cases. And by the way, I know this with a science, like, a hundred percent certainty because we had waves collapse even before we had vaccines.

 

So this is a really important point, because if the Fed reacts to something that is extremely impermanent, something that’s over in three weeks, if the Fed at Jacksonhole and subsequently in September waivers, you know, I mean, that will just set, I think the market alight, in my view. I think that will collapse the dollar and they will sell the bond, because it will have been using this, you know, temporary blip in sentiments to justify a changing course.

 

The other thing I would say is, like, so Sam mention Afghanistan. I think he’s right to mention it. I think it’s really significant, and it’s significant because of this. I think… I’ve always expected that during the summer, the fiscal policy would get much more challenging. And now, because of the Republicans, I think moderate Democrats in the Senate versus progressive Democrats in the House were always going to try to eat each other alive.

 

But now, with this utter failure in Afghanistan, that looks really, really bad, they are going to circle the wagons on fiscal calls because the last remaining, the last remaining lever of the Biden administration is this fiscal package. If they don’t get it through, guys. Yeah. The Biden administration is done. And I mean, I’m not talking about midterms either. So they have to do something on fiscal. Right.

 

So this is why the stakes have now become much higher. They’re gonna pay Mansion. They’re gonna pay Cinema. They’re gonna get deep water ports in Arizona and West Virginia to get their compliant with a fiscal deal. You know what I mean? Like, there’s gonna be so much more. I wish I was living in West Virginia. I mean, they’re gonna have ice rinks in every little town. It’s gonna be amazing.

 

And so this is something to keep in mind, I think on that front, too. So I agree with Sam. I think it’s a really good point of how these things are very dynamic and they reinforce each other. And I just think that the political pack of lease resistance in every single issue we’re talking about here leads to more profligacy.

 

TN: Yeah, I think you’re right. I think at least for the near term, that’s the bias, is exactly in that direction.

 

Okay. Guys. Thank you so much. Again, I think we could go on for hours with this, and I love this discussion, but I really appreciate your time.

 

For everyone who’s watching. Please subscribe to our YouTube channel, where we need a few more subscribers to bring you a few more capabilities on our channel. If you don’t mind, please subscribe.

 

And Sam and Marko. Really appreciate your time. Thanks very much.

 

MP: Thank you. Thank you.

 

TN: Let’s do it again, and I want to come back in January and see who wins.

 

MP: Yeah, sure. We should definitely do that. We didn’t tell people when we been into, but it’s like a really nice steak dinner, I think was the… If the 10-year is at like between one point 49 and one point 51, I think we just…

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QuickHit

Sentiment has soured: How will governments and companies respond? (Part 1)

Sentiment has soured: How will governments and companies respond? (Part 1)

Companies are saying that the Q3 revenues will be down a bit. What’s really happening and how long will this last? Chief Economist for Avalon Advisors, Sam Rines, and a returning guest answers that with our first-time guest Marko Papic, the chief strategist for Clocktower Group.

 

In addition, both the Michigan Consumer Sentiment and the NY Manufacturing survey down as well. Watch what the experts are seeing and what they think might happen early in 2022.

 

Watch Part 2 here. 

 

Subscribe to our Youtube Channel.

💌 Subscribe to CI Newsletter and gain AI-driven intelligence.

📊 Forward-looking companies become more profitable with Complete Intelligence. The only fully automated and globally integrated AI platform for smarter cost and revenue planning. Book a demo here.

📈 Check out the CI Futures platform to forecast currencies, commodities, and equity indices

 

This QuickHit episode was recorded on August 19, 2021.

 

The views and opinions expressed in this Sentiment has soured: How will governments and companies respond? (Part 1) QuickHit episode are those of the guest and do not necessarily reflect the official policy or position of Complete Intelligence. Any contents provided by our guest are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

Show Notes

 

TN: So I guess we’ve started to see some negative news come in with the Michigan Consumer Sentiment with the New York Manufacturing Survey and other things. Most recently, we had some of the housing sentiment information come in. And I’ve heard companies talk about their revenues for Q3 will be down a bit. And so I wanted to talk to you guys to say, are we at a turning point? What’s really happening and how long do you expect it to last? Marko, why don’t you let us know what your observation is, kind of what you’re seeing?

 

MP: Well, I think that, you know, the bull market has been telling us that we were going to have an intra cyclical blip, hiccup, interregnum, however you want to call it since really March. And there’s, like, really three reasons for this. One, the expectations of fiscal policy peaked in March. Since then, the market has been pricing it less and less expansion of fiscal deficits. Two Chinese have been engaged in deleveraging, really, since the end of Q4 last year, and that started showing up in the data also on March, April, May.

 

And then the final issue is that the big topic right now is something we’ve been focused on for a while, too, which is this handover from goods to services, which is really problematic for the economy. We had the surge of spending on goods, and now we all expected a YOLO summer where everybody got to YOLO. It really happened.

 

I mean, it kind of did. Things were okay but, that handoff from good services was always gonna be complicated, anyways. And so I’m going to stop there because then I can tell you where I stand and going forward. But I think that’s what’s happening now and what I would be worried about. And I really want to know what Sam thinks about this is that the bull market been telling you this since March. There’s some assets that were kind of front load. The one asset that hasn’t really is S&P 500, as kind of ignored these issues.

This chart of S&P 500 Stock Market (SPX) is generated from CI Futures, an app forecasting nearly a thousand assets across currencies, commodities, market indices, and economics using artificial intelligence and machine learning technologies. Curious how it can you and your business? Book a time with our expert and get free trial.

 

TN: Right. Sam, what are you seeing and what do you think?

 

SR: Yeah, I’ll jump in on the third point that Marko made, which is that handoff from services or from goods to services. That did not go as smoothly as was planned or as thought by many. And I don’t think it’s going to get a whole lot better here. You have two things kind of smacking you in the face at the moment. That is University of Michigan Consumer Sentiment and the expectations. Neither of those came in fantastically. Today isn’t great. Tomorrow isn’t expected to be great.

 

Part of that is probably the Delta variant, depending on what part of the country you’re in, that is really beginning to become an issue. Not necessarily, I mean, it’s nowhere near as big of an issue as COVID was for death and mortality in call it 2020. But it’s a significant hit to the consumer’s mindset. Right?

 

And I think that’s the part, what really matters is how people are thinking about it. And if people are thinking about it in a fear mode, that is going to constrain their switch from goods to services and the switch from goods to services over time is necessary for the economy to begin growing again at a place that is both sustainable and is somewhat elevated. But at this point, it’s really difficult to see exactly where that catalyst is going to come come from, how it’s going to actually materialize in a way that we can get somewhat excited about and begin to actually become a driver of employment. We do need that hand off to services to drive employment numbers higher.

 

And what we really need is a combination of employment numbers going higher, GDP being sustainably elevated to get bond rates higher. So I think Marko’s point on what the treasury market is telling us should not be discounted in any way whatsoever.

 

The treasury market is telling us we’re not exactly going to a 4% growth rate with elevated inflation.

 

United States GDP Annual Growth Rate
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TN: Right.

 

SR: It’s telling us we’re going to something between Japan and Germany at this point.

 

TN: Yeah. That’s what I’m a bit worried about. And with the consumer sentiment especially, I’m a bit worried about sticky sentiment where we have this Delta variant or other expectations, and they remain on the downside, even if there are good things happening.

 

Do you guys share those worries, or do you think maybe the Michigan survey was a blip?

 

SR: Oh, I’ll just jump in for 1 minute. I don’t think it was a blip at all. I think what people should be very concerned about at this point is what the next reading is. That reading did not include the collapse of Afghanistan. It did not include any sort of significant geopolitical risk that is going to be significant for a number of Americans.

 

Again, it’s kind of like Covid. It might not affect the economy much. It’s going to affect the psyche of America significantly as we move forward. And if consumer sentiment were to pick up in the face of what we’ve seen over the last few days, I would be pretty shocked.

 

TN: It would be remarkable. Marko, what do you think about that?

 

MP: So I’m going to take the other side of this because I have a bet on with Sam, and the bet is, by the end of the year, I’m betting the 10-year is going to be closer to 2%. He’s betting it’s going to be closer to 1%. So he’s been winning for a long time, but we settled the bet January 1, 2022.

CBOT 10-year US Treasury Note
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Here’s why I think I would take the other side of a lot of the things, like when we think about where we’re headed. So first, I think there’s three things I’m looking at. There’s really four things. But the fourth is the Fed. And I’m going to like Sam talk about that because he knows a lot more than I do. The first three things I’m looking at is, as I said, there are reasons that the bond market has rallied. And I think a lot of these reasons were baked in the cake for the past six months, or at least since March.

 

The first and foremost is China. And China is no longer deleveraged. The July 30th Politburo meeting clearly had a policy shift, but I would argue that that been the case since April 30. They’ve been telling us they are going to step off the break. And, quite frankly, I don’t need them to search infrastructure spending a lot. I don’t need them to do a lot of LGFB. I just need them to stop the leverage. And so they’re doing that.

 

And the reason they’re doing that is fundamentally the same reason they crack down on tech. And it has to do with the fact that Xi Jinping has to win an election next year. Yeah. And an election. It’s not a clear cut deal. He’s going to extend his term for another five years. CCP, The Chinese Communist Party is a multi sort of variant entity, and he has to sell his peers in the communist party that the economy is going to be stable.

 

And so we expect there to be a significant policy shift in China. So one of the sort of bond bullish economic bearish variables is shifting. The second is fiscal policy. Remember I mentioned that in March, investors basically started, like the expectations of further deficit increases, basically whittle down. This was also expected.

 

The summer period was also going to be one during which the negotiations over the next fiscal package were going to get very difficult. I would use the analog of 2017. Throughout the summer of 2017, everybody lost faith in tax cuts by the Trump administration. And that’s because fundamentally, investors are very poor at forecasting fiscal policy. And I think it has to do with the fact that we’re overly focused on monetary policy. We’re very comfortable with the way that monetary policy uses forward guidance.

 

I mean, think about it. Central bankers bend over backwards to tell us what you’re going to do in 2023. Fiscal policy is a product of game theory, its product of backstabbing, its product of using the media to increase the cost of collaboration, of cooperation. And so I think that by the end of the year, we will get more physical spending. I think the net deficit contribution will be about $2 trillion, the net contribution to deficit, which is on the high end. If you look at Wall Street, most people think 500 billion to a trillion, I would take double of that.

 

And then the final issue is the Delta. Delta is going to be like any other wave that we’ve had is going to dissipate in a couple of weeks. And also on top of that, the data is very, very robust. If you’re vaccinated, you’re good. Now, I agree with everything Sam has said. Delta has been relevant. It has, you know, made it difficult to transition from goods to services, but it will dissipate. Vaccines work. People with just behavior. So.

 

TN: Let me go back to the first thing you mentioned, Marko, is you mentioned China will have a new policy environment. What does that look like to you?

 

MP: There’s going to be more monetary policy support, for sure. So they’ve already, the PBOC has basically already told us they’re going to do an interest rate cut and another RRR cut by the end of the year. Also, they are going to make it easier for infrastructure spending to happen. Only about 20-30% of all bonds, local government bonds have been issued relative to where we should be in the year. I don’t think we’re going to get to 100%. But they could very well double what they issued thus far in eight months over the next four months.

 

So does this mean that you should necessarily be like long copper? No, I don’t think so. They’re not going to stimulate like crazy. The analogy I’m using is that the Chinese policy makers have been pressing on a break, really, since the recovery of Covid in second half of 2020. They’ve been pressing on the breaks for a number of reasons, political, leverage reasons, blah, blah, blah. They’re not going to ease off of that break. That’s an important condition for global economy to stabilize.

 

Thus far, China has actually been a head wind to global growth. They’ve been benefiting from exports, you know, because we’ve been basically buying too many goods. They know the handoff from goods to services is going to happen. Goods consumption is going to go down. That’s going to hurt their exports. On top of that, they have this political catalyst where Xi Jinping wants to ease into next year with economy stable.

 

Plus, they’ve just cracked down on their tech sector. They’re doing regulatory policy. They have problems in the infrastructure and real estate sectors. And so we expect that they will stimulate the economy. Think about it that way. Much more actively than they have thus far.

 

TN: Great. Okay. That’s good news. It’s very good news. Sam?

 

SR: Yeah. So the only push back that I would give to Marko and it’s not really pushback, given his assessment, because I agree with 99% of what he’s saying. But the one place that I think is being overlooked is, one thing is the fiscal policy with 2 trillion is great, but that’s probably spread over five to ten years, and therefore it’s cool. But it’s not that big of a deal when it comes to the treasury market or to the economic growth rate on a one-year basis. It’s not going to move the needle as much as the middle of COVID.

 

TN: Let me ask. Sorry to interrupt you. But when you say that’s going to take five to ten years, when we think about things like the PPP program isn’t even fully utilized. A lot of this fiscal that’s been approved over the last year isn’t fully utilized. So when these things pass and you say it’s going to take five to ten years, there’s the sentiment of the bill passing. But then there’s the reality of the spend. Right. And so you just take a random infrastructure multiplier of 1.6 and apply it.

 

There’s an expectation that that three and a half trillion or whatever number happens, two trillion, whatever will materialize in the next year. But it’s not. It’s a partial of it over the next, say, at least half a decade. Is that fair to say?

 

SR: Correct? Yeah. Which is great. It’s better than nothing in terms of a catalyst to the economy. The key for me is it’s not being borrowed all at once. It’s not being spent all at once. Right.

 

If it was a $2 trillion infrastructure package to be spent in 2022, I would lose my bet to Marko in a heartbeat. It would be a huge lose for me, and I would just pay up. But I would caution to a certain degree, it’s $200 billion a year isn’t that big of a deal to the US economy, right. That’s a very de minimis. Sounds like a big number, but it’s rather de minimis to the overall scale of what the US economy is.

 

And you incorporate that on top of a Federal Reserve that’s likely to begin pulling back, or at least intimate heavily that they’re going to begin pulling back incremental stimulus or incremental stimulus by the end of 2021 and 2022. And all of a sudden you have a pretty hawkish kind of outlook for the US economy as we enter that 2022 phase. And it’s difficult for me, at least, to see the longer term, short term rates, I think, could move higher, particularly that call it one to three year frame. But the ten to 30-year frame, for me is very difficult to see those rates moving higher. With that type of hawkish policy in coming to fruition, it’s kind of a push and pull to me. So I’m not obviously, I don’t disagree with the view that China is going to stimulate and begin to actually accelerate growth there. I just don’t know how much that’s actually going to push back on America and begin to push rates higher here.

 

I think we’ve had max dovishness. And strictly Max dovishness is when you see max rates and when you begin to have incremental hawkishness on the monetary policy side and fiscal side. And 2 trillion would be slightly hawkish versus 2020 and early 2021. When you begin to have that pivot, that it’s hard for me to see longer term interest rates moving materially higher for longer than call it a month or two.

 

TN: Okay, so a couple of things that you said, it sounds like both you agree that China is going to do more stimulus. I think they’re late. I think they should have started five or six months ago, but better now than never. Right. So it sounds to me like you believe that there will be the beginning of a taper, maybe a small beginning of a taper late this year. Is that fair to say.

Categories
Podcasts

US Complete Lockdowns Unlikely

Corporate earnings are beating the Wall Street estimates — are these even accurate? For the exporting countries in Asia — will they be badly hit with further lockdowns? And why is WTI crude oil dropped all of a sudden? All these and more in this quick podcast interview with Tony Nash at the BFM 89.9 The Morning Run.

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/us-complete-lockdowns-unlikely on August 5, 2021.

 

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Show Notes

 

SM: BFM 89.9. Good morning. You are listening to the Morning Run. I’m Shazana Mokhtar in studio today with Wong Shou Ning and Philip See. First, though, as always, we recap how global markets ended the trading day.

 

PS: Yes, the U.S. was relatively mixed. The Dow is down 0.9%. S&P 500 also -0.5%. Nasdaq was up 0.1%, crossing over to the Pacific and Asia. Also a mixed day. The Nikkei was down 1.2%. Shanghai Composite and Hang Seng were both up 0.9%, Singapore up 1.1%. And actually, not surprisingly, FBN, Kilcher was down 1.6%.

 

SM: And for some insights into what’s moving markets, we have on the line Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Always good to have you. So looking at corporate second quarter earnings, they’ve been beating Wall Street estimates, yet a prevailing bearishness seems to be creeping into U.S. markets. Is this an accurate reading driven by the rise of Covid-19 cases from the Delta variant?

 

TN: Yeah, earnings are up about 90% year on year, and a lot of that really has to do with companies cutting back staff and trimming expenses. This is a really nice, obviously not unexpected, but a really nice pop. But the cutbacks have come to a limit if we’re straddling a come back. Part of that is revenues are up 22% on quarter, which is great. But given the cutbacks, it looks extraordinarily good. So these things have a way of winding down. There’s only so much you can only get this good for so long. So we do expect this to to erode a little bit going into next quarter.

 

WSN: But does this mean that markets will find it hard to go to the next leg up in?

 

TN: It depends. It depends on company performance, but it also depends on things like central bank activity and fiscal spending. So if we look at Covid, it depends on which way it’s going. And if Delta variant gets worse and the fatality rate gets worse, which isn’t here in Texas, the fatality rate per case is half of what it was back in February. So just six months ago, the fatality rate here was twice per case of Covid.

 

So we’re hearing a lot about case counts. But the reality is the fatalities are declining pretty rapidly. So here we see that is a good thing. And and so we’re hopeful that things will you know, we’ll continue to move back to a normal situation. But there’s a lot of talk about, you know, closing things down. New York just put coded passports in for going to restaurants and going out in public, the sort of thing.

 

What that does is that really it really hurts small local businesses. It hurts chains for, say, restaurants and shopping. It helps companies like Amazon that do a lot of local deliveries. So so if New York is going to lock down, it helps to work from home type of company try it. But it seems to me in the US it’s going to be really hard to close the US down again because there’s a lot of push back in the US to closing down in some places, not so much New York, California, those those places, but other places. If there was an attempt to lock down again here in Texas, people would be pretty resistant.

 

PS: And you made a point on central bank activity. Fed Vice Chairman Richard Clarida confirmed that they are on track to raise rates in twenty twenty three, but jobs data is soft. So how should we make of all this?

 

TN: Yeah, I don’t see that happening. Look, you know, people talk about rates a lot, but the Fed has so many tools. I would expect the Fed to commence some sort of QE plan in the not too distant future before I would expect rates talk. I think we’re closer to QE than we are to rates much closer to QE than we are at a rate. So I don’t see rates changing certainly in obviously in twenty one. I don’t see them changing in twenty two. If it’s twenty three, maybe it’s the back half, but I just don’t see that happening simply because we’ve got to stop the flow of finance ministry and central bank activity going into economies globally first before we start to impose higher rates on borrowers. So we just need to get to a zero state or a semi normal state before we start imposing higher rates on borrowers.

 

SM: OK, and turning our attention closer to home, Tony. An economic upswing in Southeast Asia this year looks increasingly uncertain. And given that ASEAN is predominantly export dependent, how badly hit do you think countries in this region are going to be?

 

TN: Yeah, I think it’s hard. For those countries that have the benefit of, say, natural resources exports like Malaysia with palm oil and crude oil and other things, I think that helps. However, manufactured goods are difficult, partly on supply chain issues, partly on Covid, you know, restrictions and other things. So international transport is still in a very difficult situation. So I think it’s tough for Southeast Asia. I think there’s a big move in Europe and North America to have more manufacturing done nearby in regions.

 

So I think this, over a period that’s been protracted 18 months or longer. I think the more that happens, the more we see unwinding of global supply chains and the more we see the unwinding of Asia as the centralized manufacturing hub globally. I think we’ve seen more regional manufacturing. I don’t think that necessarily means that the manufacturing in China or other places are necessarily in danger. Unfortunately, a place that I think places that I think are more in danger of places like Malaysia, Thailand, the middle income, middle tier type of manufacturing countries. So the automation, competitiveness, these sorts of things are really much more important in places like Malaysia and Thailand.

 

WSN: And Tony, I want to switch to oil because when I look at the Bloomberg at the moment, WTI is showing at sixty eight U.S. dollars a barrel for delivery in September. What do you make of this sudden drop in prices? Is it due to demand decline?

 

TN: It’s on Covid fears. News all over the here in the U.S. It’s a lot of Covid fear mongering and you know, a lot of that. The media is based in New York and D.C. And so there’s a lot of chatter on the government side. And in New York, the New York media is trying to get the the focus away from Andrew Cuomo, the governor there, and really trying to focus on Covid and other things. So markets are reacting.

 

Business doesn’t want things closed down. Again, people in business don’t want to close down again. So I think, you know, you’re going to see a real push pull in markets over the next couple of weeks as that debate happens about two places closed down or not. And you’ll see some volatility in things like commodities and in other markets as that very active discussion continues.

 

SM: All right, Tony, thanks as always for your insights. That was Tony Nash, CEO of Complete Intelligence, talking to us about the situation of the economy in the US. And, you know, that push and pull between closing down, how do we deal with with the covid, but at the same time, you know, make sure the economy doesn’t suffer too much.

 

PS: You made a very interesting point that with closing down, who is affected the most. Right, with respect to businesses. He did say smaller businesses are more susceptible as result of a closure locked out. But the same is exactly the same thing you’re going to see across the board.

 

WSN: Yeah, yeah. I think he also brought up an interesting point about the fact that, yes, there is this decentralization of manufacturing hubs. Right. Because I think a lot of businesses are concerned that with covid-19 and they have really been proven that supply chains can be very easily disrupted. But ironically, Malaysia may not be a beneficiary. It might move to other countries. And it’s a question of whether we move up the value chain to provide that, you know, that that automation that we need do.

 

The things that we talk about are 4.0. I’ll be ready for it. Do we have to staff for it? Will they go to other countries? And he hinted that he might. So I’m just curious, in the longer term, what is our government’s plans, especially now 12 million, your plan confirmed to be in September and budget 2022 in October?

 

SM: That’s right. And we’re going to get a perspective on this later on in the show at seven forty five when we speak to the president of the Malaysian Semiconductor Industry Association. So stay tuned for that BFM eighty nine point nine.

 

Categories
Podcasts

Awash with Cash and Jay Powell’s Continuation, Markets Look Up

Tony Nash joins BFM 89.9 and explained where markets are headed in the context of rumors that dovish Fed chief Jerome Powell might stay a second term, even as corporate earnings and cash-rich US tech giants might boost gains with share buybacks. He was also asked whether the US market is bullish right now — and what sectors should investors look at? Also discussed is the EU economy amidst the recent lockdowns.

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/awash-with-cash-and-jay-powells-continuation-markets-look-up on July 22, 2021.

 

❗️ Check out more of our insights in featured in the CI Newsletter and QuickHit interviews with experts.

❗️ Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.

 

Show Notes

 

SM: BFM 89.9. You are listening to the Morning Run I’m Shazana Mokhtar together in studio with Wong Shou Ning and Khoo Hsu Chuang as we always do in the early morning, we recap how global markets ended the trading day.

 

WSN: Yes, it was an excellent day in the U.S. The Dow and S&P 500 were up zero point eight percent. Nasdaq was actually up 0.9%. Nikkei 0.6%. Shanghai is up 0.7%. Hong Kong was down 0.1%. Singapore is up 0.3%. And week Abkhasia were down 0.2%.

 

SM: OK, then to get some insight into where global markets are headed, we have on the line with us Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Let’s start with the markets. They seem to be toggling between risk on and risk off. Which direction is it in? Is it a long bull or one that’s plateauing?

 

TN: It really all depends on the Fed. I think we expect to see things continue to rise through Q3. Well, they should continue to rise gradually. Doesn’t mean we won’t see volatility. We do expect to see further fallout. But by the end of the quarter, we expect things to continue to march higher, even through the volatility and some of the uncertainty. The Fed meeting in August in Jackson Hole really should give us a bit of clarity around what some of their future plans are. But beyond that, we do expect the Fed to be pretty calm and markets to proceed accordingly.

 

KHC: There’s some news, of course, unconfirmed at this point in time that Jerome Powell might seek a second term. What might that mean for markets and investors, given that he’s more of a dove than a hawk?

 

TN: I think it’s continuity, I think the White House has talked about other people to take that role, but I think keeping Powell right now is actually important for continuity because a really tricky situation. So I actually think I’m not a huge Powell fan, I’m not a huge detractor, but I actually think it would probably be a good idea to keep him in order to to reassure the markets with continuity.

 

WSN: Meanwhile, its results season. So far so good, except maybe for financials and Netflix. But we already see some strategists upgrading the S&P 500 year end targets. Do you think they’re a little bit too premature?

 

TN: No, I don’t think so. I think we’ll continue to march higher. We’ll have a few scares before the end of the year. But I think we will continue to march higher. The thing that I think is will be a little bit worrying for people toward the end of the year will be, you know, will the risk of keeping things in be enough? You know, will you get enough reward for keeping your money in the market?

 

Because I think things will get riskier the further way we go along in the year. All of this is assuming there isn’t more Covid aid and Fed stimulus and all this other stuff like increased rate of stimulus. But assuming everything is the same as it is now, we’ll hit toward the end of the kind of benefits of that stimulus toward the end of the year, at least the perceived benefits. And I think people really start to wonder whether the reward is there for them to to keep their money in the markets.

 

WSN: But, Tony, if I ask you to look into your crystal ball, what sectors do you think might surprise on the upside then?

 

TN: I think we’ll start to see things like travel and tourism do well. There are mumblings of efforts in the US that certain people want to close down parts of the economy. Again, we’ve seen California start to take some steps in that direction. But I just don’t think that anybody here wants things closed down again. Texas has said today that he will not reinstate a massive mandate in Texas.So Americans really want to get out. They want to travel. They want to see other parts of the country in the world. So I think we’ll see some things in tourism and travel do really well.

 

KHC: What you’ve just mentioned obviously reflects the economic fundamentals and a reflection in terms of those sectors. But JP Morgan, I think a couple of days ago talked about the S&P hitting 40, 600 points, is about 200 of the plus points from here on, and not because of the economy returning, but because of the share buybacks. What do you think about that particular development?

 

TN: Look, companies have a lot of spare cash and and how are they going to get EPS growth if they don’t buy back shares? The economy is awash with cash right now. If you’re the CFO for a publicly traded company and you have a lot of cash on the side, you really have to do that calculation to understand how is it going to hit your share price if you do buybacks. I think that’s definitely a part of the equation, at least of the end of the year, if not in the second half of ’22.

 

KHC: So names wise, who pop out obviously Berkshire with over 200 billion and Apple a notable cash hoarder’s, what are the names pop out to you.

 

TN: I can’t think of any right now to be honest, but I think it’s just a matter of looking at balance sheets and looking at who has that cash and then also, doing some research on the CFO and the board and look at their previous behavior. Some companies want to sit on cash or they want to say invest it. Others want to do share buybacks are typically technology companies do a lot of share buyback services. Companies do a lot of share buybacks. So I think those are the sectors that you would want to be looking at, banking, services, technology, those sorts of things.

 

SM: All right, Tony, let’s squeeze in one more question. Looking across the pond to Europe in 2020. Europe’s economy struggled with the pandemic. What’s your outlook on the E.U. this year, particularly in terms of an export led recovery?

 

TN: You’re getting a lot of pushback among EU citizens around lockdown’s, especially with the current variant that’s going through. And there’s a lot of discussion about the efficacy of the virus. And, you know, all this a lot of public health debate. But the problem of Europe has is well, on its on the plus side, China will likely keep the CNY strong into 2022, so that should help European exports. But when you look on the down side, Chinese PMI and consumer spending really haven’t been aggressive in recent months and we don’t really expect that to come roaring back in the next six months or 12 months.

 

So China is going to have some real pressure. Europe is going to have some real problems with goosing exports into China. I think the U.S. is fine and number two, export market for Europe. But I think there are some difficulties between the U.S. and Europe right now. And it may not necessarily outside of maybe automotive, it may not necessarily be a roaring market for Europe. So I think they have some serious headwinds and I think they’re going to struggle.

 

SM: All right, Dan, thank you so much, Tony. That was Tony Nash of complete intelligence, giving us his outlook for European exports and not looking particularly rosy at this point.

 

WSN: Yeah, but still very bullish on the U.S. markets. Right. He does suggest that S&P 500 might inches we up, but the risk of what may be the easy money has been made. So it’s not going to see some stellar jumps. But he likes tourism and travel. He thinks that Americans don’t stay home anymore.

 

KHC: No brainer. I mean, people have been stuck at home for 15 months, right? They want to go traveling.

 

WSN: But I don’t know if your infection cases rise. I mean, will you curb your own behavior? You might write especially I think in America, Delta is now 80, 80 percent of all the infections.

 

KHC: Don’t forget, America is the land of the free and the brave, the brave.

 

WSN: I like that word.

 

KHC: be the first of the Marcellus. And then, you know, Bob’s your Uncle Gene. I mean.

 

WSN: OK, well, we’ll watch this space, but I think its results season.

 

SM: That’s right. We’ve got a few results on our docket to look at this morning. Let’s start with Coca Cola’s. Coca Cola reported a second quarter revenue that surpassed twenty nineteen levels, prompting the company to hike its full year outlook. So Coke reported a net income of two point six billion dollars. That’s up forty six percent on year. Of course, there was a low base last year. Net sales rose forty two percent to ten point one dollars billion, topping expectations of nine point thirty two billion dollars.

 

WSN: Well, the. Good news is that the company said that the away from home channels, so like restaurants and movie theaters were actually rebounding in some markets like China and Nigeria. However, India and Southeast Asia were the only areas that did not see any sequential volume acceleration on a two year basis this quarter. Surprise, surprise, because I think India, particularly by covid-19 in Southeast Asia, was still in some form of lockdown, especially Malaysia. But all is doing segments reported double digit volume growth for the quarter.

 

Sparkling soft drinks units, including, of course, its namesake soda did particularly well.

 

KHC: I saw net sales rise by 42 percent. That is incredible. You know, this is a 245 billion dollar company, right, for net sales in one quarter. The rise with 40 percent. You know, I think lest we forget, a lot of people, they don’t care about diabetes. You know, they don’t care about high blood pressure.

 

WSN: No, but I think that’s why Coke is venturing into other drinks. So you do see high drinks. They do like growing five percent and even coffees significantly.

 

KHC: So there’s a developed market bias, which is obviously to grow more healthy. And there’s an emerging market base which is aspirational. Coca-Cola is aspirational. You cannot I mean, for people who have grown up on Cichon and warm water, right. They want to have Coke.

 

WSN: By the way, for those who are wondering what says is Chinese to eat.

 

KHC: Yeah, the chips drink you can find in a coffee shop.

 

I should know I’m from Penang.

 

WSN: But the street clearly loves it, right? I mean, when I’m looking at Bloomberg, the consensus price target is sixty U.S. dollars and twenty six cents. Current share price is fifty six dollars and fifty five cents. Still nineteen buys nine holes five times current earnings.

 

SM: Well when you think about it, this is probably super cash generative. So not surprising. It’s perfect. Right.

 

WSN: All right. I’m looking at another company that has its earnings out. Johnson and Johnson reported earnings and revenue that beat Wall Street’s expectations. Revenue rose up twenty seven percent to two point three billion U.S. dollars, beating the twenty two point two billion expectations.

 

Well, this is the pharmaceutical industry business, right? They developed the single shot covid-19 vaccine generating twelve point six billion in revenue, a seventeen percent year on year increase. Global sales just this quarter, 164 million. And I think that’s just just the beginnings of it, right?

 

KHC: Yeah. I mean, I recall a few weeks ago Pfizer talked about how they’ve seen they expect billions and billions of decades of billions of dollars in top line. And Pfizer’s it’s a very long tail. Pharmaceutical sales.

 

SM: There we go, 719 in the morning. Up next, we’re going to bring to you the major headlines in today’s papers and portals. Stay tuned. BFM eighty nine point nine.

 

Categories
Podcasts

Manage Your Expectations, Valuations Are Stretched

Tony Nash joins the BFM team, giving them his views on the equity markets, fixed income market, Fed Reserve, and oil prices. What’s his recommendation to investors now that Dow, S&P 500, and more equity markets have reached a new all-time highs? And what about the consensus on oil? With all the changes in the markets, are we seeing a new economic model?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/manage-your-expectations-valuations-are-stretched on July 8, 2021.

 

❗️ Check out more of our insights in featured in the CI Newsletter and QuickHit interviews with experts.

❗️ Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.

 

Show Notes

 

PS: Really good day in the U.S. The Dow and S&P 500 were up 0.3%. The Nasdaq was flat. Shanghai is up 0.7%. But the rest of Asian markets were down negative. Heng Seng was -0.4%. Nikkei down 1%, FTI down 1.5%. And back home, FBI culture was also down 0.01%.

 

WSN: So to help us make sense of where markets are going, we speak to Tony Nash, CEO of Complete Intelligence. Now, Tony, Nasdaq, S&P 500, Dow, all hit all-time highs. Does this make you actually nervous? Markets looking a bit toppish?

 

TN: I don’t know about toppish today, but I guess what people have to be aware of is how big is the gain from here? So whether you’re toppish now or toppish in October, you really have to be careful about the risk calculation right now and what your expectations are as things turn over in the coming quarter or two.

 

PS: But time to switch for anything. What asset classes or markets look attractive now?

 

TN: You know what. I think you just got to be careful all around. The expectation, evaluations, levels of investment, profits and so on seem pretty stretched as we’re in the middle of wage pressures, inflation pressures and stressed consumers. So I think there seems to be more risk than opportunity out there. So I think we’re in a pretty stretched market and short of more support from global governments. It’s really hard to justify significantly higher valuations.

 

SM: And everyone is, of course, looking at the Fed, where last night’s FOMC minutes, what financial markets expected from the Fed or or do you think they could have given more clarity on their monetary policy?

 

TN: Well, they can always give more clarity. I mean, there’s always kind of reading the tea leaves with the Fed. But I think what really came out of it was what was expected. It was pretty noncommittal. They said tapering is coming, but they didn’t say it’s coming soon. There’s no expectation of a rate hike hike soon. So it’s really the current status quo, whatever that is. But it’s kind of more of the same for more time.

 

We don’t really expect much to change in the Fed through 2022. Markets have sufficient headwinds as it is as the world re-normalizes. We don’t expect much exciting happening. We didn’t expect that this month. We don’t expect it for some time.

 

WSN: Is that why the 10-year bond yields in the U.S. dropped from a four-month low, 1.3163? I look at the bloom at the moment. DO you think…

 

TN: This could be. But it’s also, you know, the current Fed chair may not be renominated by Biden. And if Jerome Powell is out, we’re likely to see Lael Brainard come in, who is very much a monetary policy activist. So we could see a really active Fed, not a conservative and extremely dovish Fed if Lael Brainard comes in. So I think that could be part of the reason we’re seeing expectations change in some of the bond markets.

 

PS: Can we shift your attention over to oil? Because as you know, the lack of consensus in OPEC+ and with the failure to negotiate production quotas has really put pressure on oil prices again. Is this conflict going to introduce more short term volatility in oil markets?

 

TN: Sure, yeah. Until there’s agreement between the U.S. and Saudi Arabia, I think we are going to see volatility because as the UAE creates a gap in expectations, other players like Russia and other folks can potentially violate the OPEC+ agreement. OPEC doesn’t necessarily have a history of agreeing uniformly very often. OPEC+ agreement has been one where they’ve really abided by it pretty well. And so OPEC is more fractious than it is kind of universal. I think we’re going to see volatility for at least a short time. But I do think there is underlying strength in oil prices. We don’t expect the $100 oil any time this year. Some people are calling for that. But we do see continued build in the strength of oil prices through the end of the year marginal bill.

 

SM: All right. And looking at other indicators, I mean, the US economy is booming, but the US ISM non-manufacturing figure for June came in below market expectations. Could you give us some explanation on what were the reasons for that drop?

 

TN: You know, the main reason really is unemployment or employment. Companies have had to cope with fewer workers as these federal government subsidies have kept workers on the sidelines. Effectively, they’ve paid workers to sit at home more than they’d make in hourly jobs. And so small companies particularly have had to figure out a way to work without additional workers. So now a lot of those workers are coming off of the federal stimulus packages. But a lot of these small and mid-sized sized companies have kind of learned how to cope without as many workers.

 

So they’re not trusting new workers until wages really come down. So it’s really kind of putting an impediment in the path for especially small and mid-sized companies. And that’s where there’s a little bit of doubt in the ISM.

 

WSN: So are we seeing a new economic model then, Tony, where there’s a lot of what we expect in terms of the full and employment numbers will change?

 

TN: It’s a great question, I certainly hope not. Over the last year and a half, we’ve seen immense government intervention in markets globally. Was the stimulus too much? Was it misallocated? We can argue that all day long. But the fact is, we’ve seen immense government stimulus and it takes a long time for stimulus that large to wash through the system.

 

We’re seeing the back side and the down side of stimulus. You know, we’ve seen things like inflation rates rise, you know, all this stuff over second quarter, but that’s really just a year on year number. We’re seeing what’s called base effects there. We’re seeing the same in things like wages and impacts on markets from government activity. So Q2 was a huge anomaly for markets and for government because of what’s happening globally with Covid in Q2 of 2020. As we kind of come back to a relatively normal-ish market, maybe by Q4, you know, we’ll start to see more normal readings across wages across, profits and other things.

 

So there really is a slow build. And as more of that government stimulus gets pulled out of the market or at least slows down, we’ll start to see things normalize. I don’t necessarily think it’s a new model unless the government insists on continuing to intervene and subsidize markets.

 

WSN: All right. Thank you for your time. That was Tony Nash, CEO of Complete Intelligence, giving us his views on the equity markets and even the fixed income market. But what was really surprising is that he thinks Jerome Powell will be replaced as the Fed chair. I was like, “this is news to me. I thought he was doing an OK job.” And usually I would imagine Joe Biden leading them to do their thing.

 

PS: That’s right. I wouldn’t expect Joe Biden to have places, political perspectives in the appointment of the Fed chair. But I think there are a lot of key decisions that has to be made. And that whole link between the tapering of his asset purchases and adjustment of interest rates, how do you have that delicate balancing act will be very critical.

 

WSN: Janet Yellen and Jerome Powell worked well together and Janet Yellen is his appointment. So I’m a little bit surprised by this news. But other news that I was like kind of focused on was also the fact that he thinks at the energy market upside is limited. So I think all of us as investors have to adjust our expectations in terms of the returns, because if you talk about the rally from March 2020 lows to now, it’s about 90%. And that’s staggering.

 

PS: And Tony is alluding to the fact that the stimulus was too broad, not targeted enough, I think, which basically resulted in a wash of cash, I think, creating a lot of frothy markets. And this is the challenge now.

 

WSN: So how does the bubble kind of burst, right, without creating chaos? Absolutely. You kind of want to deflate it, but not so much.

 

SM: And can I also draw your attention to something else that Tony said that caught my eye, the fact that he thinks oil isn’t going to hit $100 per barrel. We’re actually going to be discussing more on oil later at seven thirty after the bulletin with Sally Yilmaz of Bloomberg Intelligence. So stay tuned for that conversation on what the oil market’s going to look like.

Categories
Podcasts

Synthetic Economy

Tony Nash joins the BFM Morning Run podcast from Malaysia and explained why we have synthetic economy and how to navigate through this. Also discussed are tech stocks — is this the end for them?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/synthetic-economy on March 4, 2021.

 

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Show Notes

 

WSN: Nasdaq closed sharply down last night, continuing a trend that sees it almost erased all its year-to-date gains led by declines in Apple, Amazon and Tesla. Is this the end of big tech?

 

TN: I don’t think it’s the end of big tech. I think investors are taking a pause. We saw tech jump a lot in the wake of Covid. Investors are really starting to wonder how much additional growth is there over time. We’ve seen the work-from-home stocks and other things really get lifted through Covid. But how much immediate rapid growth is left is where a lot of the investor questions lie.

 

WSN: Is this also the beginning of a trend where we really see the rotation from growth into value?

 

TN: “Value” is a scary word right now. It has been for a long time. We have a ways to go, but I think we could get there. We’ve been talking for a few months about a pullback in March and we expect the pullback to continue and will begin to recover in late March, April. So we think this has a little ways to go unless there’s dramatic intervention by central banks and other things. But we think this pullback is not ideal but it’s necessary given stretched valuations and stretched expectations. So this is healthy for us. We just need to figure out what to do with it.

 

PS: Just give me another angle that instead of looking at it from values about sector specific, because yesterday, energy and financials did do relatively well. But was the energy upside due to the rising prices? And how does that correlate with OPEC’s decision coming soon with respect to oil production?

 

TN: I don’t think it gets really much more complicated than rising oil prices. These energy companies generally are still extremely bloated, extremely inefficient. Aside from the crude pressurizing, there really isn’t a lot that we see driving it. So we do expect commodities to take a pause. We’ve expected this for some time. We’ve seen copper come down by five percent or something.

 

Over the past few trading days, crude oil has leveled off in general. It’s not rising as fast as it was. Some of this has to do with CNY starting to weaken a bit. Chinese and the U.S. Dollar to start to strengthen their sort of related, but they’re not necessarily one and the same. So as we see some of that, an unraveling of some of that, Kerry, we’ll see some commodities start to come off of it as well.

 

WSN: BDA shows that the U.S. manufacturing grew at its fastest pace in three years. So are we really on the road to recovery?

 

TN: I don’t necessarily think that the economic growth expectations that we’ve seen from economists saying seven percent growth or something like that are necessarily the right way to go. When we look at the growth that we saw in Q4 and the growth that we’ve seen in Q1, I’m not sure we’re already back, at least in the U.S., to where we were before the virus. And so it’s really questionable for an economy that’s been growing one to three percent, depending on the year. Is a seven percent growth rate really warranted? Additionally, when you see things like deflation and the Chinese CPI, those two growth engines, we’re not necessarily seeing the rapid growth that some people have been claiming.

 

PS: Just another angle then, which is employment data, because December, January data didn’t meet expectations. What’s your outlook for February then?

 

TN: It’ll probably be OK. I think if the employment data is extremely positive. The US is susceptible to politicization of macro data just like everyone else. If we see a pop in employment data, I think they would be revised out. All of these macroeconomic indicators are revised three or four times. If we see a pop in a sample of employment data, which they look at a subset of houses and companies, they don’t look at the entire economy. If we see a pop, which we’re not necessarily seeing, we think that would be revised out over time. So I would say be really careful about optimism here. OK, it’s great. I live in Texas. We just announced that Texas one hundred percent open yesterday. All this stuff. It’s great to be optimistic, but we’ve really had synthetically driven growth. It’s not necessarily real growth. It’s all subsidized growth in many, many countries over the last, say, nine to 12 months.

 

WSN: That’s very true because this the twin Goldilocks effect of monetary and fiscal stimulus but somewhat related to unemployment numbers is that if the number is better on Friday, do you think markets might get nervous? Because that’s one of the indicators the feds are looking at to raise rates.

 

TN: We’re in that place where bad news is bad news and good news is potentially bad news. So we really have to be careful. What’s going to happen to Treasuries? Is the Fed going to raise rates? How does all that work if we start going to hot? I think it’s the right question that you’re asking. When we have an equity market and global equity markets that are so stretched, if the cost of money, which is what interest rates are, starts to rise, then we really have to be careful about equity valuations.

 

PS: During a deep dove into a specific sector, which is basically all this office collaboration companies like Zoom and Slack, what’s your outlook for those kind of sectors in the short term and mid-term?

 

TN: It’s good. They’ve grown a huge amount over the past year, but I really think we have to look at what growth is. They’re likely going forward, meaning there is growth. But is it as fast as what we’ve seen over the past year? I think the answer is probably no. They are probably also working on their revenue models to monetize some of the things that they’ve been giving away for free for the past year. Like a Zoom call is free. How do they monetize those things? That’s a serious question, but what are they substitution for and what do they enhance?

 

They’ve been substitution for meeting face to face people in the same office. But as more places go back to work, albeit slowly, they won’t necessarily need that for day to day, although it’ll still be used. Again, my question is the growth will be slower, but I would hope it’s better growth, meaning more monetized growth.

 

WSN: All right. Thank you for your time. That was Tony Nash of Complete Intelligence, giving us his views on markets and a very important point in that all these work from home teams may be the easy money is made because we did see stellar growth. Right, as everyone switch to zoom calls and all these kind of new technology. But now the question is, are we going to really see profit coming in? Is there going to be margin expansion?

 

PS: I want to know how they’re going to monetize and whether they’re going to expand the services beyond what they do. As Tony, you see, a lot of it is kind of free of charge. So what is the business model going to evolve to deliver sustainable profit? It’s a big question mark for me.

 

WSN: Yeah, and one company which hasn’t impressed is actually Snowflake, and that’s a data cloud company. Now, they announce a revenue for fourth quarter, which came in at one hundred and ninety million U.S. dollars, slightly better than the one hundred seventy eight million dollars that was expected. So this represents I mean, it is impressive when you just look at the headline numbers. It represents one hundred and seventeen percent growth year on year. But like as Tony highlighted, this company actually suffers a net loss.

 

So their net loss widened to one hundred and ninety nine million U.S. dollars. That’s more than double that 83 million in the. The same period a year ago.

 

PS: Yeah, I mean, the markets didn’t like it because the stock dropped eight percent on Wednesday. I mean, just a reminder to all of you guys, Snowflake was the largest IPO in 2020. Right. So with respect to guidance, snowflakes specs 185 to 200 million U.S. dollars in productivity in the first fiscal quarter, which is will be up about 90 to 96 percent year on year.

 

WSN: So, yeah, you can be hard on a stock that has a fantastic concept data. Right. Everybody wants that in the clouds. But in a day, patience with investors will run thin if you don’t make money. And that’s the reality of any business. So I think, like you sit like what Tony highlighted those companies where you see stellar revenue growth, but not profit after a while.

 

Market’s not going to tolerate it for that long. And when they issue like a set of results, which are below expectations and widened widening, no losses, no end to that, you know, no no sense of when are they going to turn around. I think you then see that sharp sell down again.

 

PS: And take, you know Tony, said something really interesting. Bad news is bad news. Good news could be potentially bad news.

 

WSN: Is that there is the cup half full or is it half empty? Sometimes the market is like this, the same set of data. Depending on the mood, the sentiment can be viewed either very positively or negatively. So if you get a better data but you’re in a positive mood, you can say, oh, the worst is over, let’s look forward.

 

But if you’re in a bad mood or you think the market’s being pessimistic and resolve, everyone’s like, oh, no more to come. So who knows? But up next, we’ll be speaking to on JinMing MP for Bungay about Malaysia’s economic recovery. Stay tuned. BFM eighty nine point nine.

 

Categories
Podcasts

Cold Front on Oil Prices?

Tony Nash is back in the Morning Run, hosted by BFM 89.9, as he points out the crude oil price and how long to expect the rally, considering factors like weather, demand, and supply. Tony also mentioned about a potential pullback and snap and how you can better be prepared for it. Should you continue buying tech stocks or move elsewhere? Also, they discussed crops and where the prices are going this year.

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/cold-front-on-oil-prices on February 18, 2021.

 

❗️ Check out more of our insights in featured in the CI Newsletter and QuickHit interviews with experts.

❗️ Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.

 

BFM Description

 

Tony Nash from Complete Intelligence, from freezing Texas, shares with us the current supply constraints in the US impacting oil prices in the short- and medium-term.

 

Produced by: Mike Gong

 

Presented by: Philip See, Wong Shou Ning

 

 

Show Notes

 

WSN: For some color on where global markets are heading, we have in the line with us Tony Nash, CEO of Complete Intelligence. Tony, are you freezing out there in Texas?

 

TN: Yes, we are. We haven’t had it this cold air for decades. So it’s it’s been a really interesting week.

 

WSN: That has had an impact on oil prices. Bloomberg showing Brent crude at $64 per barrel, WTI at $61 per barrel. So how badly impacted our energy markets at the moment? Where do you think oil prices are going?

 

TN: A lot of this is very short term. What you’re not seeing that the traders really pay attention to right now is that a lot of refineries are closed because of weather and they’re starting to close for annual maintenance. There’s this presumption that there’s a demand pull, which we’re not really seeing from anywhere in the world right now, and that the winter storm issues will pull energy prices. But again, the fact is the refineries that would take this stuff are closed. We expect this to be short lived. This is an extension of a crude price rally that we saw that we expected to come in Jan, it’s lasted into February and we really don’t expect this to have a lot of legs to it.

 

PS: What do you think the outlook looks like then for the mid-term like quarter to quarter three?

 

TN: We would see 10 to 20 percent off of this price? We don’t necessarily think that this is a sustainable level short of some sort of supply cuts. But the weather in Texas, for example, we’re going to be kind of in normal weather ranges in two days. What we’ve seen this week and the close down, as we’ve seen this week, it’ll take people a couple of days, maybe a week at most to get things back on line. So this perceived supply shortage will be back on line fairly soon.

 

WSN: How about yields on U.S. 10 year bonds? Because they’ve hit a new high one year high. What what is that trying to tell this? What a market try to tell us?

 

TN: U.S. is trying to raise money and they’re willing to pay more for it. I think that is is really it. I think there is a growing fear that equity markets are as high as they’ll get. We’ve started to see more of that tension come in into chatter over the last few days. People are willing to pay to get out of markets, to park their money in debt.

 

So I’m sure it helps the U.S. as they’re raising more money for stimulus and for operations. But as we creep up to four thousand, that is just unimaginable for a lot of people. And it’s not as if we are doing better as an economy than we were in 2019 or the first quarter of 2020. This is built on stimulus, as we’ve talked about before. It’s built on central bank activity.

 

And you can only stretch that so far before things have to snap. We’ll see some of these things that are at double and triple and quadruple kind of the standard multiples. And P is the only way to measure this stuff. But we’ll see things that are really, really stretched, snap into a more reasonable region. But it’ll happen any time tomorrow, three weeks from now, a month from now, whatever. It’ll just happen. It’ll happen any time. And it’s best to be prepared for it.

 

PS: So are you expecting some pullback eventually? Right. What is the tipping point where investors will essentially do that exodus or flock to U.S. Treasuries then?

 

TN: One of the tipping points is going to be the resolution of stimulus. I’ve been saying for weeks that stimulus will not be what the administration wants it to be. There are such high expectations put on that stimulus right now and they’re not going to get it. They’ll get a lot of it, but they’re not going to get all of it. Expectations are sky high. And when it doesn’t hit, I think that will be one of the catalysts.

 

But there are other things like when the crude price starts to fall because this supply constraint isn’t there anymore. These sorts of things, these things add up and then they snowball and and then you start to see markets really, really take a dove. We’re not necessarily calling for a 2008 generational type of decline in markets. It’s just a bit of a pullback so that people can just say, “OK, wait a minute, let’s check, take stock how businesses are doing. Take a look at our investments and our allocation and then reallocate.” That’s really what it’s about.

 

WSN: Where would you relocate to and what are the safe haven assets? Because almost every asset class on a year to date basis is up. Right. And maybe except for Google, which is down six percent on the year today.

 

TN: What you’re likely going to see is a pretty serious rotation out of technology where people have focused on because of the work from home activities. This may not be immediate, but I think you’ll see a rotation out of a lot of the work from home stuff as people start real life again and you’ll see people move into. This is not really my the basis of our outlook. But you may see more of a regional move into things like tourism.

 

These things have just taken real hits. A lot of them have had speculative rises, some of the cruise lines. But some of them are still way down. All of this depends on gradual normalization. But I can tell you, Americans are really tired of being locked in, really tired of not socializing. And some of these things are going to have to start up again.

 

PS: What about not all out commodities then, like agriculture and precious metals?

 

TN: We had some real pressure. And part of the reason of that pressure was because there was a perception that a lot of the Chinese corn crop didn’t come in last year. But a lot of the drought was outside of that zone. Some of that pressure was alleviated.

 

But still, we’re seeing some pressure on wheat right now in the U.S. It really all depends on how much the current cold snap impacts the output later in the year or the ability to plant. Right now it’s not terrible.

 

Until we start seeing real demand come back in entertaining and in consumption and these sorts of things, we’re not going to see a major demand pull on food because people are already buying their standard cook at home type of things right now as they’ve rebuilt their behaviors over the last year. We’ll see that change. But unless we see a drought or unless we see an issue in a high consumption part of the world, we’re not necessarily going to see a boom in those places.

 

WSN: All right. Thank you for your time. That was Tony Nash, CEO of Complete Intelligence, giving us his views on global markets and saying that, hey, oil prices are going to come under pressure probably in the next two to three months, because this is not really driven by real demand, is just probably weather patterns which are going to normalize anyway in Texas in a few days.

 

PS: He also made a point about oil, where this, I think, a slight surge in prices is actually a short term because supply is going to get back on quite soon.

 

WSN: Yeah, but other interesting news is actually the ongoing saga of big tech versus Australia, because it looks like Facebook has defied Australia’s push to make big pay for news by banning the sharing of content on its platform in the country. And this is the most far reaching restriction is ever placed on any publisher in any part of the world.

 

PS: So the extreme step to remove Australian news came as Google separately struck a global deal with Rupert Murdoch’s News Corp diffusing a long running dispute between the two companies. The dramatically different approaches could mark a pivotal moment for the media industry, which had hoped Australia’s tough regulatory approach would help reset its terms of trade with Google and Facebook worldwide.

 

WSN: So the moves by Google and Facebook came on the day Australia begin debating laws that would force big online platforms to license news. Now Facebook’s action will have a global impact. Under the provisions, news from Australian publishers will be blocked on the platform for all Facebook users, regardless of where they are based. The Australian government said it will continue to engage with Facebook. Press ahead with legislating the code, Canberra also warned that withdrawing news from Facebook’s platform in Australia could dent its credibility with users.

While this is quite big stuff. Actually, yes.

 

PS: Yes. I mean, Australia wasn’t the first country to, you know, get into this spat. I think you really was in having discussions. And France and Spain already had deals with a lot of with Google and Facebook with respect to media purchase. But it’s a question about publishers.

 

WSN: Yeah, I mean, at the end of the day, right. We do know media companies are suffering. Right. Álex has come under pressure. Subscriber growth has come down. How a media company is going to generate the revenue. So in the past, all these big tech companies, the argument was that they got to earn super normal above what is the what super normal profits without paying the likes of the media companies because they were using these media companies content to their benefit.

 

So some countries like Australia and even if you try to kind of diffuse the situation and have, I suppose maybe in their mind, a fairer playing field. But the Google deal nonetheless, if you look at it, the Google deal with News Corp announced on Wednesday goes beyond the Australian market, extending to Murdoch’s titles such as The Wall Street Journal and The New York Post in the U.S. and The Times and the Sun in the UK. No other news publisher has reached a single deal with Google across multiple countries.

 

Now, critics say the deal would benefit News Corp. rather than the rest of the news industry.

 

PS: Yes, well, we’ve been talking about the price. And since you looking at Google’s valuation, I suspect Google’s to be the winner because they have just really this unique access to this quality content. So. So why not?

 

WSN: Well, they’ve pledged so far to spend one billion over the years on buying news content and reach agreements with publishers in about a dozen countries.

 

But we’ll be watching this space because we do a media outlet.

 

But up next, we’ll be discussing the recently announced national unity blueprint. Stay tuned for that. BFM eighty nine point nine.

 

Thank you for listening to this podcast. To find full great interviews, go to PFM Goodbye or find us on iTunes, BFM eighty nine point nine. That is the station.

 

Categories
Podcasts

Rotating Permanently into Cyclicals

In this Morning Run BFM episode, Tony Nash shares his views where equities are heading now that the 2020 Election has concluded. Will the new administration reverse China policies by Trump? Also, what is the implication to the world exports with a weaker USD and stronger CNY? Lastly on oil: what is its future? Will the rally continue? Does it have enough support?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/rotating-permanently-into-cyclicals on January 7, 2021.

 

❗️ Check out more of our insights in featured in the CI Newsletter and QuickHit interviews with experts.

❗️ Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.

 

BFM Description

 

With a blue wave in Georgia, what does this mean for the US economy and equity market? Tony Nash, CEO of Complete Intelligence, tells us that the rotational play is now here to stay while giving us his view on oil prices.

 

Produced by: Mike Gong

 

Presented by: Lyn Mak, Wong Shou Ning

 

 

Show Notes

 

WSN: Joining us on the line for his take on where markets are headed is Tony Nash, CEO of Complete Intelligence. Equity and currency markets were waiting for the Georgia election results, which have just come out. Given that outcome, where the Democrats have won, where do you see U.S. equities heading?

 

TN: We don’t see major upside for U.S. equities without significant short-term intervention by the Fed or by some stimulus or infrastructure package. Given where Congress is, I’m not sure that there would be the ability to get much through Congress so it would have to come from the Fed. It’s possible, but we see more the hard assets like gold and commodities. And then you see crypto currencies rising pretty fast as well. But the risk really with equities is to the downside more than to the upside.

 

WSN: But if we just look at last night’s flows, there was some rotation into cyclicals like banks and small caps with less fund flow into big tech, perhaps over concerns of increased litigation action against them. Do you think this will change into a more long-term kind of rotation?

 

TN: We’ve expected that for some time. That rotation is long overdue. But the Fed have enabled tech and crypto to have a longer run. That rotation has been put off a bit. So if now is the time, great. We would definitely welcome it. We’re just overexposed in certain sectors.

 

WSN: And meanwhile, last night, US 10-year treasuries top two percent. What does that tell us?

 

TN: The U.S. is having a harder time raising money? They need to pay a little bit more to get money. I don’t necessarily think it’s a harbinger of inflation. Although it’s possible with a weaker dollar. I would say higher import prices. Chinese yuan on the run, strengthening. You may have higher import prices, but people have been warning about inflation for years now and we just have not seen it register. I think it just means that that the U.S. Treasury has to pay more to raise money.

 

WSN: And with Biden coming in on January 20th as the next US president, I would like to see a reversal of Trump’s more adversarial policies with China?

 

TN: Biden will be very accommodating to China. I think you’ll see different parts of the House and the Senate not be happy about it. But he’ll be absolutely extremely accommodating. More accommodating than Obama was.

 

WSN: What impact do you think that might have on the U.S. economy? Because in the past there was some shift into more U.S. based manufacturing. Will that then reverse?

 

TN: With the USMCA, the NAFTA number two agreement, I think there’s more incentive for companies to have facilities in the NAFTA zone. China obviously is more expensive and with an appreciating CNY, that makes it more difficult to invest while you get less for your money in China. China is becoming an increasingly hard sell. That has been the case since 2017, 2018. It’s not going to turn back. Until there is a reciprocal and enforceable investment agreement in place with China, I think China is where it is. I don’t think you would see a mad rush of direct investment going to China.

 

WSN: What are your views in terms of where the U.S. dollar is hitting? Because you just mentioned that the Yen is likely to appreciate?

 

TN: It already has. The Chinese officials are becoming a little bit nervous about how strong CNY has become because it’ll put a real damper on their their ability to export. You have the Euro versus CNY weakening. You have the Dollar versus CNY weakening. It’s coming to a point where it could be somewhat problematic for China. So they will push to weaken their currency, maybe not immediately, but say in first quarter. As you see more stability, post Brexit with the new normal Europe. As you see more stability in the US with the new administration, I think you’ll see a bit of relative strengthening of those two currencies versus CNY.

 

WSN: And shifting our attention to one of the commodities: oil. Yesterday, Saudi Arabia’s cutting oil output while Russia is increasing theirs. What’s the rationale for this? And OPEC members then divide it on production quotas?

 

TN: OPEC members may verbally agree to things. Whether or not they comply with that has been a burden for OPEC for decades. So what they all want is more volume export and the prices is the real issue.

 

So I think there’s an intention to present mixed messages so that there’s uncertainty in the market so that we see Brent price that’s sustainably above 50 dollars. That is is good for OPEC. That’s good for some of the producers like Malaysia and Texas where I live. I think consumers, we don’t necessarily to expect to see a sustainably strong oil price because we don’t necessarily expect to see a dramatic recovery in 2021. But we don’t expect to see a dramatic recovery that would spike oil prices up to 70, 80 dollars.

 

WSN: Do you expect oil prices to be where it is, which is currently around 50 U.S. dollars per barrel for WTI?

 

TN: For six plus months, we’ve expected a spike in January. And we’ve been telling people since July, August that we would see a spike in oil prices in January. And this is exactly what our artificial intelligence platform has told us for quite a long time. So we’re seeing what we’ve expected. We’ve also expected a fall going into February. Like I said, this is great. This is very much in line with what we thought would happen. But we expect there to be some downside to this and downward pressure within the next 30 to 60 days.

 

WSN: All right. Thank you for your time. That was Tony Nesh, CEO of Complete Intelligence, giving us his views on where markets are heading. And it seems like it’s not surprising that there’s a bit of a market correction or at least a market rotational flow out of tech, which valuations have kind of hit all time high and some rotation into the cyclicals like banks and small caps. But I think his views on oil are pretty interesting that it’s you know, we are going to see maybe a bit of downside from here.

 

What will he take? Reasoning?

 

LM: I think his comments about particularly what we can expect out of a Biden administration were quite interesting because commentators now kind of are kind of split over how they believe Joe Biden will kind of stack up compared to Barack Obama once he is inaugurated as president of the U.S. And the idea of Joe Biden being more accommodating than Obama, particularly with Trump also still continuing his crackdowns on China. It’s almost enough to give you whiplash, isn’t it? Because once January 20 is rolls around, how much of Trump’s measures will be rolled back?

 

I mean, only recently he’s just signed an executive order as well, banning several Chinese payment apps over security concerns. So this affects eight payment apps and it’s supposed to take an IT take effect in 45 days after Trump has left office.

 

WSN: Yeah, and what’s interesting is these eight p.m. apps are very well known to include the likes of ADP, Tencent, Cucu and even WeChat P now in the executive order, said that these apps captures swaths of information, including sensitive, personally identifiable information and private information. Now, how much of this an impact will have is unclear, since it’s understood that the usage of these apps outside of China remains limited. For example, the ALP has roughly one billion users, but they are mostly in China.

 

However, it does have deals with merchants in the U.S. such as Walgreens, and claims to work with more than two hundred and fifty overseas partners. Now, separately, the New York Stock Exchange has made another U-turn on its earlier U-turn to delist three Chinese telecom companies, which be. Going round and round and round, yeah, it’s like a mini roundabout now, so and these three companies are China Mobile, China Telecom and China Unicom.

 

LM: So the NYSE first announced that it would delist the companies on New Year’s Eve before changing course four days later. And the delisting complies with Trump’s executive order banning investment in Chinese companies with purported ties to the military. So the exchange said its latest decision is based on new specific guidance received on Tuesday provided by the Treasury Department. Treasury Secretary Steve Mnuchin reportedly called the NYSE president, Stacie Cunningham, to voice his displeasure with the decision to allow these three companies to remain on the big board.

 

WSN: Well, I think this story will just get the plot will get thicker and thicker, and whether the roundabout will get bigger and bigger, we’ll just have to find out. But up next, we ask the question, what can you do to attract more foreign direct investment for us? Ross, the senior economist with Mark, will be joining us for that discussion. Stay tuned for that BFM eighty nine point nine.

 

Categories
Podcasts

Work-from-home stocks a defensive play in 2021?

In this BFM episode, Tony Nash explains the defensive play of the WFH company Keane and how it compares to other tech stocks like Tesla? Also, will the good days for the financial and energy stocks continue? And how about the outlook for Sterling as the Brexit deal is being ironed out? Will the Pound appreciate or decline? And why there seems to be a never-ending trade war against China — now recently with Vietnam and Malaysia imposing tariffs on the Chinese steel?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/work-from-home-stocks-a-defensive-play-in-2021 on December 24, 2020.

 

❗️ Check out more of our insights in featured in the CI Newsletter and QuickHit interviews with experts.

❗️ Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.

 

BFM Description

 

As we head into 2021, will we see more work-from-home stocks being used as a defensive play? The Morning Run speaks to Tony Nash for his perspective on this, as well as his views on financials and energy stocks, the Sterling, and tit-for-tat trade wars.

Produced by: Mike Gong

 

Presented by: Roshan Kanesan, Wong Shou Ning

 

 

Show Notes

 

WSN: With volumes on U.S. equities drying up ahead of the holiday season, are you expecting investors to hit the sell button or to keep this whole positions over the period? Because the market’s somewhat a little bit more happy today, a little bit more green?

 

TN: I’m not sure, but I’m sure there is not a conviction either way right now. Investors aren’t really sure that they’re ready to pull the plug on things. People are waiting to see what’s going to happen with the stimulus funds. They’re waiting to see how smoothly the transition goes with the US government. They’re waiting to see how companies Q4 earnings come in. So in the next few weeks, aside from some commodities play, I’m not entirely convinced that we’ll see dramatic movements in one way or another.

 

WSN: And I’m just curious following up on that. So for the moment, it still seems that even though the Nasdaq corrected a little bit today, the work-from-home, Keane is here to stay as a defensive play?

 

TN: Sure, that is an effective play, but the benefits or the upside to that play is really questionable. The Nasdaq has over 40% this year. When you look at the valuation multiples on some of these tech companies like Tesla, you’re looking at over a thousand percentage. For some of the tech companies, you’re looking at fifty to 200 to revenue.

 

Some of these tech companies are being played out. That’s not to say they’re going to see necessarily downside. But the upside? I don’t believe it’s necessarily as high as it has been in 2020. We have these moments in markets where you see serious upside in different sectors and then it comes down for a bit. We’ve seen that in 2020. Are we going to see that in 2021? We’re not convinced. That maybe  possible. But we’ve seen some pretty hard closed down for people who’ve had their quickly transition to work from home. A lot of that valuation are largely played out.

 

WSN: If we look at the performance of the S&P 500, it was really the day for financials and also the energy stocks. Do you think these themes will continue into 2021?

 

TN: Certainly, that kind of stock are partly a result of the expectation of stimulus — whether that’s $600 to $2000 per person. There should be more transactional activity in terms of services with energy. There’s an expectation that people will start flying a bit more.

 

What’s positive is the expectation on a  margin within oil and gas firms as they refine their products. I think that’s a bit higher as the margins of the percentage go up as the normal values go up. We’ve been saying for several months that the oil prices will rise in the end of December and early Jan, and that’s playing out. We’ve expecting that for about six months. But we do expect crude prices to fall going into February. So while those margin plays are there now, we don’t expect that to be there at the end of Q1.

 

WSN: Moving to the UK, the Sterling appreciated this morning on the back of the news that Brexit deal might be ironed out. But where do you see the currency heading?

 

TN: We’ve expected the Sterling to weaken a bit by the immediacy of the news. But over time, we expect the Pound to re-appreciate because we really value the U.K. There’s a lot of wishful thinking within the EU that Britain would suffer as they exit the EU. We’ve done a lot of analysis on this over the last three years and there’s really just a lot of upsides for the U.K. to separate. That’s not a political view. That’s purely an economic view. We have expected the Pound to take a bit of a pounding in the short term. But we do expect it to re-appreciate as that separation gets in pace.

 

WSN: Malaysia and Vietnam, they recently placed higher tariffs on Chinese steel. And although unrelated, this comes after China imposed some additional duties on various Australian imports. Do you see this tit for tat tariffs going to continue to be the norm in 2021 and no end to it?

 

TN: We’ve been saying for a couple of years that we expect trade to turn from these fairly invisible activities like subsidy to non tariff barriers, which is really regulatory into direct tariffs. It’s like going back to 1980s pre-WTO where there’s more of a fiscal benefit for the country than the protectionist benefit in a non-tariff barrier regulation.

 

Many countries are a bit tapped out on subsidies, so they’re not necessarily going to be able to pay their industry as much to protect them. So they’re going to have tariffs to generate revenue. Specifically, the Chinese steel, there’s a global glut of Chinese steel, of the Hang Seng, for years. It wasn’t surprising that these tariffs have been levied because they have a little bit of it’s own steel industry. They’re protecting themselves from the glut of Chinese steel.

 

WSN: All right. Thank you for your time. And that was Tony Nash, CEO of Complete Intelligence, giving us his views on global markets.