The badger of broad st takes a bite of apple

3 mins. to read

Nobody really knows what’s going on in the markets. Barrow boys, psychologists and analysts make educated guesses. Market gurus might guess slightly better than the proverbial taxi-driver because they are (ever so!) slightly better informed and (arguably) more focused. Of course they call it market intelligence or some-such similar guff… 

As I gaze from my den upon our listless end of May trading floors I’m trying to figure out how stock markets are hitting new highs yet bond yields are hitting new lows. Normally one would not expect such contradictory behavior from Mr Market. Yet, it makes perverted sense. 

The bond markets perceived low rates as a distortion, and saw the end of QE in the US as the signal for the end of the low rate/post crisis era. Bond players thus expected, quite correctly, that interest rates would rise pretty quickly back to “normal” levels. 

Instead, US economic data has been lethargic and what passes for recovery looks very fragile indeed from my lair. 10-yr bond yields which were 3% at year end and are now 2.45%. The big bond funds did look to be in trouble last year when rates rose, but now Mr Bill Gross and his Pimco Global Bond Fund looks pretty smart with a 40%+ allocation in Treasuries. Did he guess, or has Bill’s “new normal” slow growth dull economy become the reality? 

Lots of analysts are now predicting rates remaining low for years to come, although interest rate futures say next year we will see modest hikes. Someone is right… and someone therefore will be wrong. 

And as for all these stock pickers driving equities to new highs… Well, just where is the global recovery we’ve all been promised?  It’s certainly not happening in China – that’s an economy in transition and not going anywhere soon. It’s not happening in Japan where the administration say their economy is poised for takeoff, but it depends on the third arrow of reform of inefficient business restraints. That just isn’t happening in the bureaucratic comedy of manners masquerading as a country that is Japan. 

It is also most definitely not happening in Europe.. so I suppose it makes sense bond yields are so low. (It won’t happen in Europe because Europe and the Euro just isn’t a winning combination.) Is it happening in the U.S. I wonder…? 

And as for the UK – well I see they are going to add prostitution and drugs dealing to the national GDP statistics which will cause a considerable increase in the size of our economy. Fascinating – the other country doing the same thing is that bastion of financial rectitude, Italy.

The UK’s Office of National Statistics says there are 60,879 prostitutes in this country. That’s amazing. My HR department only knows to the nearest 100 the total number of employees across our fine firm at any given moment. Quite how the Government is so precise in this number is a question in intself! 😉 

But, as I watch the markets, at least I’ve got a few things correct. I’m rather smug about Apple. Everyone has been bashing the stock because they haven’t invented anything new for years: they don’t have the same innovative energy since the death of Mr Jobs, and that they are now reduced to copying or buying other firms’ technology etc etc. According to many market guessers, Apple is in terminal decline so sell the stock they say… 

Not so fast. Apple stock is the classic momentum stock on the way higher. It’s almost right back to where it was before the decline set in in 2012. How much higher can it go? Recent sales show it’s still a classic money making sales machine. And it’s investing oodles of money in new product development. Last week they announced that a new I-Phone is due in September. Next week’s WorldWide Developer Conference will announce new software.

Key question is will new products be enough to keep the Apple stock recovery on track? 

Apple has gained an impressive $130 per share already this year, the big hikes coming on sales facts and new product rumours. Buy or sell now? That depends if you’re a believer or not. It’s still a momentum trade to me. And so my trade of the week is to stay long Apple up to $650 then take profits. Get ready to play again if the new products are as exciting as the hype suggests. 

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