Reporting today from Tideway’s most southerly home office in Crete reminds me of the importance of checking news sources and accuracy, especially any news consumed online.
We had lots of concerned messages as we left with reports of fires in Rethimno, a town 30km to the east of our house along the north coast of Crete. In fact, the fires were (they are out now) on the south coast in the region of Rethimno, but a good 50km away and with prevailing northerlies never likely to reach us.
There is a lot of news on financial markets online and AI allows us to sift through it quickly to get a precis of what AI thinks is going on. Be careful, is all I would say, it is only as good as the articles it reads and seems to have great trouble in disseminating fact from fiction.
Not much from me today for obvious reasons, but great to read Nick’s piece below which gives a summary of a few of the wilder things going on right now causing extreme bouts of volatility in some parts of equity markets. FOMO is often intense when getting bombarded with how others have made so much money so quickly and easily, believe me there is no such thing as a free lunch in investment markets.
Two stories I will cover quickly:
- The SpaceX saga continues. It’s only been 56 days, and it is going to be a Christopher Nolanesque epic! (booked to see The Odyssey tonight in the open-air cinema in Chania, always a treat watching movies outside, and at least you can go get another beer if it’s a bit dull!). I got the first two chapters of ‘SpaceX the listed company’ right – the IPO boomed, followed by a sharp return to earth. The stock is now roughly 50% below peak value and 15% below its IPO price. Yesterday’s instalment I got entirely wrong; I was convinced it would tank further as the insider lock-ins expired, but it rose 6%. Fortunately, I have received a life- long household ban from day trading (after events in 2008!). 100% of the Baxter savings are in Tideway models under Tideway discretion, and all the better for it.
- Conspiracy theories are rife over last week’s joint intervention to prop up the Yen in a combined effort by the US Treasury and Bank of Japan, the first in 15 years.
At just over 200%, Japan has the largest debt-to-GDP ratio in developed countries. It has been keeping its interest rates low to try and stimulate its economy, this has led to weakness in the Yen. This in turn aggravates inflation, as Japan is a big importer of food and other goods. Inflation in Japan was already under pressure from the US/Iran oil shock. The Bank of Japan have been buying Yen on a couple of occasions this year to try and prop up the currency and last week the US joined them in this effort. Collectively they pushed the Yen up around 4% on the day.
The US has a vested interest in keeping the Yen strong, as it makes their exports to Japan more competitive and they want to balance their trade deficit with Japan. But it is also thought that the US worries that Japan will start to sell its vast holding of US Treasuries to buy Yen. The US also has a big debt balance that is starting to attract attention and US bond yields are still rising. If Japan started selling Treasuries this would further pressurise US rates, which hurts the US economy, adds to the debt pile and unnerves the stock market as the risk-free rate increases. So, the US joined in the Yen buying effort and to fund their Yen purchases they sold some of their Euro reserves, not their dollar reserves.
This last point is reported in the FT today as having ‘blindsided’ the European Central bank.
The moral of the first story is easy: short-term stock markets can behave very irrationally and do great permanent damage. Read Nick’s piece to hear about savings capital destroyed in the last few weeks.
The second story is much more difficult to read into. We are all aware that many developed countries rely on heavy government borrowing, which is often funded internationally as well as domestically tying countries together. It’s been a worry for as long as I have been advising, and to not invest because of it would have been a grave mistake over the last 40 years. Every now and then it rears its ugly head but then it goes away again. Keep calm and carry on!
