As mentioned a while ago. The idea that the US tech firms are a better and safer option than Chinese firms is a little hypocritical especially after several scandals of late involving US companies. What is even more concerning is that these tech firms are answerable to US government policy. So in effect, Google, Facebook, Apple and others are all US government controlled. Does that mean that they share all data with the US government too… when asked? Facebook and others are extremely keen to demonstrate that they are independent of the US Government as that’s seriously not a ‘cool’ association to have for young folk. Who wants big daddy watching you? The truth is, it’s inescapable. The Huawei issue is not so much about security issues but more about US protectionism which has been rife before and more recently since Mr Trump’s ‘America First’ policy. Maybe it’s about time the ‘globe’ began protecting itself against US domination. Stop shopping on Amazon until they pay their fair share of taxes to the countries they trade in. Stop buying Apple phones for security reasons. Stop using Google search.. the list goes on. For the rest of the globe, perhaps it’s time to put ‘America Last’?
Week 20 was another choppy affair as US/China issues roll on like some predictable soap opera. It’s beginning to look like the Chinese will be smarter to just sit this out until November 2020. By that time, Trump’s number should be up and the Chinese can begin negotiating with the new US president. Not long to wait, 15 months will fly by and Mr Trump knows it which is the main reason why he’s upping the volume level. For the markets, it’s frustrating. Another 15 months of this and recessions will be upon us… globally. They might be shortlived or a blip, but enough to get the Algo bots in a spin and we all know how that can end up when the black boxes go into overdrive. So at present there is a cautious feel out there. Throw in Brexit unknowns and Iranian issues into the mix and it’s not a great backdrop at all. All this leads to a weaker commodity outlook as global recession fears nearly always result in a slice in commodity values. From Miners to Oil&Gas stocks, it’s a bit like being stuck in the mud at the moment. M&A is alive but there’s not much of it across the mid tier and smallcaps. It’s a big boys playground with OXY/ Anadarko size deals. Barrick Gold/Rangold tied the knot late last year. Then Newmont and Goldcorp, followed by PanAmerican and Tahoe. It’s merger mania out their in the big miners sector. But imagine if that level of merger activity was to sweep across the small caps or mid tier players. Tie ups like Tullow & Premier Oil? Amerisur Resources and Gran Tierra? Hummingbird and Endeavour. Some of these would be more like takeover deals than mergers but the point is… are investors better off with having a plethora of stocks to choose from or would the market place be more interesting with fewer stocks, lower staff levels, fewer board members, fewer remuneration awards etc. Institutional investors which have been leaving the commodity sector in numbers might well be buyers again if consolidation took place. Many stocks out there are fragile on their own but if combined with a like for like business, could flourish and grow faster through enhanced size/reduced debt/cash flows etc. Sometimes, offering investors fewer choices but higher quality investment opportunities can actually drive a more fluid and active market place. Combining businesses really can deliver better opportunities for all involved. Of course it doesn’t suit all – poor performing management teams will be given P-45’s. This would make for a refreshing change from BoD’s which have been around too long, delivered very little but have nice fat pensions and bonus share pools built up for themselves. In Premier league terms, if a team finishes bottom, the net result is usually a managerial sacking. For many AIM listed senior Directors, if they finish bottom, they just issue more shares and go again rewarding themselves like nothing has happened, completely blind to the share price destruction of previous months or years. AIM and the mid tier of companies could easily be reduced by 50%+ and the market would be fine. In fact, it would be much much leaner and better for it.
Week 20 Review: The Independent remains top but has lost some steam of late. TheShareHUB picks are struggling to gain momentum in this risk off market as commodities continue to be shunned across the board. The irony is, where O&G stocks are concerned, the backdrop to Oil looks strong especially after OPEC’s stable supply management plans and more recently sanctions on Iran. It’s global recession fears that are doing the damage near term and until Trump/China kiss and make up, it’s hard to see the market shifting its stance. Frustrating times ahead for all involved.