David Ross

What I think I learned last week #15

The Wall Street Journal had an article titled “When a 10% Gain Makes You Feel Like a Loser”. I did not read the article, but it sounds like something written by a fund trying to compete with Echiquier Global!

Have we entered the “melt-up” phase of the bull market? Starting to look like it as the “dogs are barking.” Dogs (note to my French readers: in America, to call something a “dog” is not a good thing; we typically do not let dogs sit at the table in restaurants. We don’t even allow them inside the restaurant) like retail came to life last week as revenue and same store sales comps were not as bad as expected, leading to big moves. Foot Locker soared 28% for its largest one-day gain on record (going back to 1973), Abercrombie & Fitch jumped 24%, Ross Stores gained 10%, GAP was up 7%, and even Walmart joined the party with a 10% climb.

Another sign of the “melt-up”: Chinese social media group TENCENT became the first Chinese tech company to join the $500 billion market cap club on Monday and followed that on Tuesday by rallying to give it a bigger market capitalization than Facebook (as the crowd gasps in awe).

One stock definitely not in “melt-up” stage is General Electric. The world’s largest company by market cap in the 1990s, GE is now no longer even the largest US industrial company, a title it had held since 1980,  as it fell below Boeing after cutting its dividend for just the second time since the Great Depression.

Do you wonder how Brexit is going? This headline sums it up: “UK’s gin drinkers say they’ll drink more, not less.

The Japanese economy grew at an annualized pace of 1.4% in the third quarter. This was the seventh straight period of quarterly growth as the country recorded its longest run of unbroken expansion since 2001.

The German economy picked up pace in the third quarter as GDP grew at an annualized rate of 3.3%, compared with 2.6% in the second quarter, providing the latest evidence of an acceleration in the eurozone’s biggest economy. That’s the good news. The bad news: The Germans have no government. Even worse news: if this is the end of Angela Merkel’s career, then that means the sole leader of the free world will be, gulp, Donald Trump.

Was Germany the best EU economic performer? Not by a long shot. Taking that honor was Romania, leaving other economies in the shade with a year on year expansion of 8.6%. Its performance prompted warnings of the need for fiscal and monetary tightening in the face of inflation fears and a lack of capacity in the labor market.

The International Energy Agency, in its annual World Energy Outlook, predicted that the US will become the world’s undisputed leader in oil production, with growth in output through 2025 to be the strongest seen by any country in the history of crude oil markets. With technological advances from its shale fields, US production will see growth of 8 million barrels per day between 2010 & 2025, accounting for 80% of the increase in global supply over that fifteen year period.

Europe is not looking so good with Brexit “negotiations” still ongoing, Italian elections that increasingly look like it is Berlusconi v. Beppo, and no government in Europe (oops, I mean Germany). And this is after a difficult two weeks where European equities have come under pressure, down 3% in local currency terms, and the weakest of all global regions. I think this weakness could continue, and so does Mario Draghi, who last week said that the euro zone economy remains dependent on cheap credit and the European Central Bank is using the extension of its massive bond buys to push out any expectation for a rise in borrowing costs.

Election surprise in Chile as Sebastian Piñera and Alejandro Guillier will face each other in a run-off on December 17. This was expected, but the big surprise in the weekend’s presidential elections was the strong performance of Beatriz Sánchez in third place whose voters are expected to be for Gullier in the next round. Meanwhile the center-right candidate Piñera obtained fewer votes than expected. Peru’s stock market sold off 4% on this news.

Finally, the French Elvis, Johnny Hallyday, who has been battling lung cancer for several months, returned home on Saturday after being hospitalized for a few days with breathing problems. We all hope that he recovers and “Johnny B Goode.”

And that’s what I think I learned last week…