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The Hunters' Tails

The flesh refulgent ...

3 February 2017

Much endures. The ‘golden ratio’ of 1:1.618 is polymorphic and
perennial: the height of the Parthenon’s pillars in relation to
the distance between them, for example; the proportions
of a comely face. Now a team of Australian medical
researchers has found that people with healthy hearts have
a systolic (maximum) blood pressure of around 1.618
times their diastolic (minimum) blood pressure.

Is the ‘old normal’ no less enduring, not only not dead but
(coming) back? It seems as the body of St John de Montfort,
kept long in Nicosia. It had been mutilated by a besotted
German lady, who from the intensity of her devotions
had bitten a slice out of de Montfort’s shoulders. But
when she was apprehended and the flesh was replaced,
miraculously it grew back into place again.

Instead of more ‘slower for longer,’ economic growth seems
refulgent. It is gainsaying the bears and such forecasters as
the Bank of England – which has just had to revise up to an embarrassing extent its forecasts for the UK’s GDP: not 1.4% this year but 2%, apparently. Perhaps the Old Lady of Threadneedle Street will have to ‘reterritorialise the oppositional vernaculars’, as its governor is wont to say. In the real world, most forward corporate earnings are at record highs. Registrations of new cars in the EU and the European Free Trade Association (Iceland, Norway and Switzerland) last year have just come out at a record 15.1 million. All the various indicators of corporate confidence are rising. The latest numbers for US payrolls come out at lunchtime today and are expected to show continued improvement. And so on.

Unless, unless … What blows such babies is apparent only afterwards. Some of the known risks are Trump, debt, bond yields, inflation and ‘wars’ over trade. The last of these is protean. Reversing the protectionist (and disastrous) Smoot-Hawley Tariff of June 1930 came the Reciprocal Trade Agreements Act of 1934. It served as the model for the General Agreement on Tariffs and Trade of 1947, the multilateral institution upon which the global economy still stands. It was the precursor of the North American Free Trade Agreement of 1994 and then of the World Trade Organiz/sation established in 1995 – which China joined in December 2001. Our point is that these organisms are delicate – which Trump, of course, is not.

As for inflation and bond yields, we’ve been looking at the US in 1965-70. The circumstances were strikingly similar to today’s as Nixon sought fiscal expansion. Two results were a loss of 36% on US Treasuries and CPI that went from 1.6% to 6%. [Y]our William Littlewood of Strategic Assets continues to forecast much more – although, so far, bond yields and inflation are only ticking tidily up and both, in moderation, are good for equities. Search us. Only time will tell. We:

Stick to stocks ...

For Pan-European Absolute Return, Paul Casson, our man from Ballymena, is positive. “Last quarter Europe grew faster than the US for the first time since 2008. Not the stuff of huge valuation discounts, I reckon.” Paul is running such winners as Swatch, Commerzbank and Adecco. On the other hand, he’s held Next, which is struggling against the trend of buying clothes online from ‘brand consolidators’. “I don’t see enough value in the share price to wait for them to figure it out,” Paul says. Loser, sold.

For Global Income, Jacob de Tusch-Lec feels growth gathering – until it isn’t. He points to Volvo (which he doesn’t own) citing robust demand for trucks; and to bellwether Siemens (which Jacob does own) coming out with excellent results. Jacob is using cashflow to add to such as Corning (specialist glass) and Scandinavian banks Danske and Nordea. With big weightings in industrials, banks and financials, the fund continues to trade at a remarkable 25% discount to the market.

As, by happy stance, does Global Emerging Markets. Managers Peter Saacke and Raheel Altaf also enjoy the fund’s p/e ratio of 9.0 vs the market’s 12.1 and a dividend yield some 32% higher than the market. To Russian oil producers Lukoil and Tatneft, miners Vale and PT Tambang, Chinese car-maker Geely, tech hardware companies Sunny Optical and KCE Electronics, among others, thanks we give.

In the context of Snapchat’s $25 billion putative IPO, per et pro UK Special Situations Derek Stuart and Andy Gray note their c.17% position in technology. “But before anyone thinks we’re getting carried away,” Derek says, “our holdings include stocks like Computacenter. It’s put out a reassuring trading statement, highlighting its cash-rich balance sheet. That’s equal to 15% of the firm’s market cap, and the stock’s trading on an 8.5% free cashflow yield.”

In European Opportunities, Mark Page and Laurent Millet have added to the Italian internet bank and asset gatherer Fineco. The stock has been very weak due to uncertainty about the strategy (is there one?) of Unicredit, its main shareholder. Mark says: “Fineco offers its customers a ‘one-stop-shop’ for banking, trading and investing and its IT platform is best in class. The bank has been gaining market share at the expense of ‘traditional’ banks, and we expect this trend to continue in the years to come. While the bank generates a return on equity of 30%, it also pays a dividend of 4.5%.”

News of the week

Belgium battles back ...

“Buy American, hire American,” president Trump urged in his inaugural speech. One café in Antwerp is doing precisely the opposite. In response to the election, Café Zeezicht is to boycott US products from today.

“Given the current American politics of Trump, we felt we had to do something,” David George, the cafe’s co-owner, told the newspaper HLN. “So someone suggested we no longer sell US drinks and snacks.” American brands such as Coca-Cola, Lays potato chips and Chaudfontaine water will be replaced with Belgian alternatives like carbonated drinks from local breweries, Croky chips and the water brand Val. “An economic boycott is probably the only measure Trump is able to understand,” George added.

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