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

    Is The 2023 Consensus Wrong?

    Thanks to a subscriber for this report from TS Lombard which may be of interest. Here is a section:

    Still, bearing in mind the woeful performance of economists’ predictions in 2022, it is worth considering the risks to the current consensus. One possibility is that we are underestimating the severity of any 2023 downturn. Because of the reflexivity that kicks in as economies contract, we have seen this pattern many times before. Perhaps something will break in financial markets or – more likely – the weakness in property markets will prove systemic. For their part, central banks are ignoring the “long and variable lags” in monetary policy. But perhaps the most under-priced risk is to the upside – that the global economy proves more resilient than everyone expects. In fact, given the large distortions in the economy, we would not rule out the unscheduled return of Goldilocks. She is not going to stick around for long, but perhaps long enough to provide some welcome respite for investors.

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    Japan Highlights China Challenge in Tougher Security Policy

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

    “We see China as a strategic challenge to our country’s peace and safety and the peace and stability of the international community,” Kishida said. He added the two neighbors bear a joint responsibility for the peace and prosperity of the region and the world. 

    Referring to a “remarkable” build-up of missile capability in the region, the government said in the document it is becoming difficult to deal with the situation simply by strengthening the country’s existing missile defense network. 

    The strategy calls for acquiring “counterstrike capability” that would enable Japan to target an enemy’s military facilities, in a turning point for a country bound by a pacifist constitution since 1947. 

    Raytheon Technologies Corp.’s Tomahawk missiles are being considered for that purpose, according to the document. The Tomahawk has a range of more than 1,250 kilometers (780 miles), meaning it could be used to hit naval bases on the east coasts of China and Russia.

    Japan also intends to obtain sufficient supplies of missiles, including those made on its own, over the coming decade with ranges long enough to strike military assets in its three nuclear-armed neighbors that have been a focus of Tokyo’s concerns.

    With its new strategy in place, the government is considering revising the defense guidelines governing its military cooperation with its only formal treaty ally, the US, according to Kyodo News. Kishida may raise the issue during a visit to the US the government is seeking to organize for next month, the agency said, citing government sources. 

    Japan says it will retain its “exclusively defensive” posture as well as its ban on nuclear weapons. 

    “Today, Prime Minister Kishida ushered in a new era in the defense of democracy. I want to congratulate him on his leadership,” US Ambassador to Tokyo Rahm Emanuel said in a statement welcoming the steps. 

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    Amazon Signs Deal With Games Workshop for Warhammer 40k Films

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

    The announcement Friday was “very exciting news for Games Workshop,” said Andrew Wade, an analyst at Jefferies in a research note, noting that licensing income has built strongly in recent years. “A mainstream TV/film product could be game-changing in terms of Warhammer’s brand reach and awareness.”

    Shares in Games Workshop rose 11% in early trading on Friday, the most in almost nine months. The stock — a pandemic market darling as lockdowns boosted demand for home-based hobbies — had previously fell about a quarter year-to-date.  

    Amazon is gearing up to spend more than $1 billion a year to produce movies that it will release in theaters, following the $8.5 billion acquisition of MGM, a 98-year-old Hollywood studio that released Ben-Hur and Legally Blonde. I

    The ex-superman actor Henry Cavill is likely to star and executive produce a series adaption of Warhammer 40k, a franchise he’s made no secret of his love for, according to a report the Hollywood Reporter Thursday.

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    Sea Change

    Thanks to several subscribers for sending through Howard Marks’ latest memo. Here is a section:

    As I’ve written many times about the economy and markets, we never know where we’re going, but we ought to know where we are. The bottom line for me is that, in many ways, conditions at this moment are overwhelmingly different from – and mostly less favorable than – those of the post-GFC climate as described above. These changes may be long-lasting, or they may wear off over time. But in my view, we’re unlikely to quickly see the same optimism and ease that marked the post-GFC period.

    We’ve gone from the low-return of 2009-21 to a full-return world, and it may become more so in the near term. Investors can now potentially get solid returns from credit instruments, meaning they no longer have to rely as heavily on riskier investments to achieve their overall return targets. Lenders and bargain hunters face much better prospects in this changed environment than they did in 2009-21. And importantly, if you grant that the environment is and may continue to be very different from what it was over the last 13 years – and most of the last 40 years – it should follow that the investment strategies that worked best over those periods may not be the ones that outperform in the years ahead.

    That’s the sea change I’m talking about.

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    BOE Says Inflation May Have Peaked as Rates Hit 14-Year High

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

    The Bank of England said Britain’s inflation rate may already have peaked and that two of its policy makers believe interest rates are already high enough to drain pricing pressure. 

    The UK central bank lifted its benchmark lending rate a half point to 3.5%, the ninth increase in a year aimed at taming soaring prices and the highest level since the start of the global financial crisis in 2008.

    “The majority of the committee judged that, should the economy evolve broadly in line with the November Monetary Policy Report Projections, further increases in bank rate may be required,” Governor Andrew Bailey wrote in a letter to Chancellor of the Exchequer Jeremy Hunt. 

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    China's Economy Braces for More Turmoil as Covid Wave Spreads

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

    “The November data were way below consensus, pointing to a worsening slowdown” which will continue this month, Lu Ting, chief China economist at Nomura Holdings Inc. wrote in a note. “Surging Covid infections will offset some of the positive impact of the easing in the near term,” he wrote, adding that “the road to a full reopening may still be painful and bumpy.” 

    The scrapping of many of the Covid rules will allow residents to move about freely and for shops, factories and restaurants to remain open without fear of snap lockdowns. However, with the virus likely to sweep through a country largely unprepared for the mass illness and deaths that could occur, fear of infection will probably keep people confined to their homes and weigh on economic activity.

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    Powell Says Fed Still Has a 'Ways to Go' After Half-Point Hike

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

    “I wouldn’t see us considering rate cuts until the committee is confident that inflation is moving down to 2% in a sustained way,” he said. “Restoring price stability will likely require maintaining a restrictive policy stance for some time,” he said.

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