| Amongst all the bad news, you may not have noticed a smidgen of positive news. President Recep Tayyip Erdogan said ‘Turkey and Israel have reached a ‘turning point’ in their relationship with greater trade and energy co-operation in the interest of regional peace’. Israeli President Isaac Herzog visited Ankara, the first such trip for a decade. Below are some very sobering facts for you about the retrenchment of the ‘tech’ sector since its peak – is it the bubble bursting and indeed only the beginning of that? The Dot.com bubble will be remembered by most and the Nasdaq index then fell by 75% from peak to trough in just two years. That index is swamped by ‘tech’ stocks, though as my last note shared, they also dominate the mainstream index in the US/world as well now. Cisco was one of the biggest then – and despite brilliant business growth, 22 years later the share price has struggled to regain anything like those heady days. Was that company today’s Apple, Google, Amazon… maybe so. A look at the markets So far, the Nasdaq has fallen 20% in 2022. In Dollar terms, that’s over $5trillion of losses, which is more than the whole 75%’s worth of losses in the Dot.com bubble’s implosion. (For comparison, that is like the whole of the UK Stockmarket disappearing). Of course the index is so much bigger and wider now but still full of companies burning cash and not profitable ‘yet’, all hoping for success ‘tomorrow’. However we are coming across investors with far too much in the ‘popular’ stuff plush with ‘tech’ and for whom this relatively small decline is very painful. Almost two-thirds of the Nasdaq’s 3,000 stocks have fallen by over 25% from their 52 week highs, 43% of stocks have lost over half and a fifth of the components have fallen by 75%, the worst ratio since the financial crisis. And now we have 0.75% Bank Base rate as inflation ratchets up, still very low but creating one of the biggest gaps from the headline inflation rate, so a serious capital loss in real terms for those holding cash – the biggest gap since the early 1970s and the level at which the real value of your money is falling every year. It was lovely last week to have a graduate, Kyra Smith (daughter of a long-standing client), come for a whistlestop week at the Office before she starts her job in the City. Despite Czech being her first language, of course her English was and is so impressive and kindly she provided a report on her reflections with us. A third-party’s candid input is always valuable and she had some wise comments on enhancements to some administrative systems which we shall review. She noted ‘the Culture in Miltons is friendly, inclusive and supportive.’ She gleaned that ‘Miltons is a partner for life, guiding people through some of the most important financial decisions. Their services are exceptional and they are willing to adjust to special needs for a client, going far beyond any other commercial bank.’ She concluded ‘Miltons is a very efficient firm with a clear operating structure and a high focus on customer support and satisfaction. It provides a good working culture for their employees and has a friendly atmosphere across the organisation’. Thank you Kyra for doing that appraisal for us and all success with your new job at Nasdaq! If you ever tire there and fancy a job in beautiful North Devon, contact us!  Investing themes We have done very well indeed from the mining sector over the last few years and indeed, the extra returns have helped our overall mainstream portfolios out-perform overall. We started buying when prices were really in the doldrums and have been trimming exposure several times, taking profits. However, the future remains very bright, especially as the demands from green energy will escalate the need for most base commodities and the Russian situation will accelerate this drive. In fact, in view of environmental pressures restricting exploration and as they also increase costs, commodity prices are likely to remain high and with the sector including precious metals (always good in a crisis) as well as having historically low gearing and these companies are buying-in and cancelling their own shares (so increasing the returns for remaining shareholders) it will continue to be a supported sector for us, with embarrassingly generous dividends too.  Woodford So Link, the administrator, says that the liquidation process is going to roll into yet another year. That is atrocious and I repeat my earlier comment – ‘what happened was bad enough, but what the administrators have done since will have been worse for the investors than had the ‘thing’ continued’. Curiously, as we are seeing presently, the seismic shifts in sectoral investing could well be pointing the way to brilliant opportunities in the types of stories which were so successful in the ‘original’ Mr Woodford – high income, ‘value’ investments which were so rewarding for many years. It’s certainly where we see two core things – excellent opportunity for high income, capital gains from deeply under-valued situations but also superior protection in the face of storms.  China Covid 19’s latest lockdowns there have exacerbated the slowdown on the Chinese markets. Whilst the Shanghai index had fallen 17% since last autumn, the Nasdaq Golden Dragon Index dropped 75% from its peak. Alibaba, China’s answer to Amazon, had also dropped 75% since 16/10/20 despite its phenomenal results and growth. Since the recent troughs, last week’s promise of a stimulus programme has seen a big bounce from the bottom. Were the same people saying that about US Tech today ‘then’ saying that could never happen there too? The Hang Seng (Hong Kong) index had also dropped 40% since February last year. Are we going to buy-in there? Not at the moment but we like more broadly-based HSBC and Standard Chartered Bank. Fortunately, we have very little exposure here although last year, an Abrdn Trust we liked, which covered all ‘Developing Markets’ decided to consult with shareholders and changed its remit to ‘China Only’. The managers didn’t listen to our objections… we had been selling but it had to be trickles so we still have £250,000’s worth, which we wish we’d sold at ‘any price’. Oh well – we shan’t win them all – most clients exited nearer 50% higher and we also had a tender offer pay out.  Nickel and dime merchants The commodity markets have had to contend with several ‘black swan’ events recently. You don’t want to be on the wrong side of these. Nickel has been one – trending over the years between $10-20,000 a tonne but ‘it’ broke at 5.42am on March 8 when a Chinese speculator burnt fingers big-time. The price had already rocketed 66% the day before to $48,078 but just after 6am it broached $100,000. It’s fallen way back again since, temporarily suspended from all dealing. What happened? ‘Mr Big Shot’ (Xiang Guangda, with his trading company, which produces nickel and with which he hopes to swamp the market this year at 850,000 tonnes) bet against prices. He sold nickel he didn’t have, hoping that by delivery time, when he’d buy to match his commitments, the price would be lower so he’d profit. Instead, the price had risen and he had no option but to pay ever rising prices to meet his contracts and on top of that, because these deals are usually done with borrowed money (on ‘margin’), the bigger the losses, the more positions anyone ‘the wrong way’ has to close quickly to reduce exposure. He wasn’t alone and whilst losses could well be over $2billion for him, other traders were receiving telephone calls to pay-up too. Meantime, the London Metals exchange cancelled all deals after a certain point – will this compromise its trading ability going forwards? You can imagine that those on the other sides of some of these distressed purchases were seriously angry about such unilateral decision to preserve some semblance of stability in the metal’s market.  Bitcoin again A client and avid eshot reader kindly sent me a quote he had seen on Forbes and which made him ‘burst out laughing’: Crypto Price Prediction: Huge Bitcoin Forecast Revealed Our reader notes his continued very happy stance ‘with the way things are managed at Miltons’ and he does conclude “If someone asked me to define ‘Ponzi’, I think that this would be a pretty good definition!” I can’t fail but to concur! My best wishes Philip J Milton DipFS CFPCM Chartered MCSI FPFS FCIB Chartered Wealth Manager |
Some good news, heavy metal debts and China syndrome
