David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Short Recession Confirms Hotter but Shorter Expansion

    Thanks to a subscriber for this report from Morgan Stanley. Here is a section:

    NBER confirms the shortest recession in history at just 2 months. From the day the recession began last year, we've been ahead of the consensus with the progression of this new cycle staring with the v-shaped recovery. It's all happening faster than normal and that means rotations and changing leadership is happening faster too. Our mid cycle transition starting back in March should now make more sense with historical comparisons as it typically begins about 9- 12 months after the recession ends.

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    Apple Warns That Growth Will Slow After Record-Setting Sales

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Apple Inc. slipped as much as 2.9% in late trading after warning that sales growth may be slowing and supplies are getting tight, putting a damper on investor excitement following a record-setting third quarter.

    The company said on a conference call Tuesday that supply constraints will affect the iPhone and iPad in the current quarter. Decelerating demand for services also will drive the slowdown. Apple declined to provide specific revenue forecasts, a practice it adopted during the pandemic.

    The cautious remarks followed a sales gain of 36% in the third quarter, with revenue of $81.4 billion shattering Wall Street’s $73.8 billion estimate. But investors are sticking to a wait-and-see attitude. The parts shortages and a patchwork of Covid restrictions will continue to weigh on Apple’s business this year.

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    New Oriental Frogs

    Thanks to Iain Little for this edition of his Global Thematic Investors’ Diary. Here is a section:

    One of our HK analysts wrote this week: “the USA government has issued a joint advisory on the risks of conducting business, studying, and investing in HK, in a direct response to the June 2020 National Security Law (NSL)…which effectively crushed the autonomous region’s special freedoms. Certain multinationals in Hong Kong now face two-way political risk as the U.S.-China decoupling continues…Businesses will be forced to pick a side: adhere to U.S. sanctions and be penalized by China or potentially violate U.S. sanctions to maintain access to Chinese markets. Airlines will need to provide passenger information to authorities before flights depart…to prevent…political dissidents from leaving HK. The NSL allows authorities to conduct wiretaps or electronic surveillance, search and seize electronic devices, requires internet service providers to produce corporate or consumer data. The NSL has dissolved freedom of press in HK. The city’s public radio station is also now under tight censorship...all media based in HK now reflects the political agenda of Beijing. The U.S. has placed sanctions on several individuals and entities within HK, barring U.S. businesses and nationals from transacting with them.”

    It is clear that under President-For-Life Xi, the primary condition for portfolio investment in China –the safety of one’s capital in a free system under a Rule of Law- does not, indeed cannot, exist.

    This brings us back to the frog. The human tendency to cling onto hope and the status quo can be admirable, but it can also be a pathway to the poorhouse in investment. The destructive forces of late 1930s Germany were foreshadowed a decade before; “Mein Kampf” was published in 1925.

    Why not invest in sectors that are actively encouraged by the Chinese state, such as semi-conductors, or which lie outside the ambit of state interference? For institutional investors tied to a global equity index, this is indeed an option, though the tendrils of the Chinese state reach everywhere. For private investors who have no compulsion to invest in China, and who see the world of investment as a “global beauty contest” it may be considered a risk too far. Other more beautiful shores, those that feel the radiation effect of a booming China, may offer more attractive prospects. ASEAN and the free-thinking members of the Trans Pacific Partnership spring to mind.

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    Email of the day on deep learning

    This week the British company Deep Minds, owned by Google, announced an important breakthrough on the knowledge of proteins. The company's CEO said that they are working on various projects including nuclear fusion. If they are successful in this venture, it will transform the demand for uranium and lithium.

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