Inflation Lingures
It was an action-packed week in the US markets, with inflation data being received with mixed feelings across the investment community. I always take a simplistic view of all macroeconomic data; this is not just because I’m a bit thick but because after years of listening to confident analysts in ill-fitting suits with several letters after their names making outrageous predictions, I realised they always turn out to be complete bollocks.
I decided one day that I didn’t need to and never would solve the impossible puzzle of economics. The great Mark Hanna is the most influential person I have ever heard talk! Mark Hanna is a character from ‘The Wolf of Wall Street, played by the great Matthew McConaughey.
He states:
“The number one rule of Wall Street. Nobody – and I don’t care if you’re Warren Buffet or Jimmy Buffet – nobody knows if a stock will go up, down, sideways or in circles. It’s all a Fugazi; it’s fake, it doesn’t exist. It’s never landed. It is no matter. It’s not on the elemental chart. It’s not fucking real.”
Life in trading and investing becomes easier once you let the above statement settle in your over-inquisitive mind.
Just as we don’t know where the stock market will be several months from now, we also need to know what the inflation and growth rates will be across the globe and basing your decisions on this today is pointless.
The Consumer Price Index
The US’s May Consumer Price Index (CPI) stated that inflation had dropped to 4%, a little cooler than analysts had predicted. Some took it as a sign that the Federal Reserve would pause its interest rate hikes. The stock market stayed in limbo until Wednesday when Jerome Powell (Chair of the FED) was expected to take the stage to confirm this. If only things were so simple! As always, Mr Powell did take the stage but gave the investment community cryptic clues about how the fed will act going forward. Basically, pausing for now but possibly but maybe not raising again later.
The Indices are beginning to look like a brick wall straight to the upside. The Fed doesn’t want this and cannot give statements encouraging more bullish behaviour. The reasoning is that as the stock market rises, the public feels more wealthy and more inclined to spend, raising inflation. I have a contrarian view, and I believe that as the stock market rises, more people will be inclined to invest money and cut back on spending. I have often been in the dark place when the stock market tanks and sometimes think, “Stuff it. Shall I just sell everything and spend what’s left on a new sofa”.
Technical vs Fundamentals
I was a fundamentalist, reading company accounts and predicting future cash flows. The traders I surrounded myself with laughed at technical traders studying charts and drawing lines. I sat in this camp for some time. Then after several years of watching price movements, I found that no matter how many cash flow models I create, the price often follows a path or the overall market, easily identifiable on a chart.
As stated above, the Nasdaq is rocketing up, fuelled mainly by the top technology companies mentioning Artificial Intelligence (A.I) in their trading updates. When the market is up like this, we are due a pullback. Opening new short-term buy positions is extremely risky unless you have a massive stop loss.
For this reason, I have been snatching profits like a scalper this week. My usual strategy of opening a position, taking some off and leaving the rest to run has not worked as well as in the recent past. This volatility shows me a top, and we could be in an earlier stage 3 market cycle. I want to see some resting time or a pull back to the 50-week moving average before feeling confident about deploying my strategy again.
My Trading This Week
It’s been another quiet week again this week, baring macro data. No companies have interested me in the US, and I mostly traded Tesla and the Nasdaq 100 in the Spread bet account (Day Trades, pattern based with volume).
I have made no additions to the ISA portfolio, and one of my companies gave a profit warning.
The Robert Walters Group is a market-leading international specialist professional recruitment group. With over 4,400 staff spanning 31 countries, the company delivers expert recruitment consultancy, staffing, recruitment process outsourcing and managed services across the globe. Their client base ranges from leading blue-chip corporates and financial services organisations to SMEs and start-ups.
I love companies where I can read the economy through the company share price chart. It shows me that the company can survive and has experienced different market conditions.
Robert Walters has the fundamentals and the experience to navigate their way through an economic storm. When I started averaging into this company on 24 May 2023 for 422p a share, I identified that this was the cheapest the company had been since 2013 and was happy to start a position. I expected profit warning headings into a potential recession and was happy to top up my holding on any falls and take advantage of the 5.6% dividend on offer. I stay mindful that this could be cut if things get really bad, but confident for now.
On Wednesday, 14th June, RWA gave up the following update:
It is now likely that profit for the full year ending 31 December 2023 will be significantly lower than current market expectations.
The board sounded optimistic last time we reported on RWA, but things have deteriorated in the economic outlook, and they acknowledge their mistake.
With the strong balance sheet and the global reach of Robert Walters, I am happy to ride the wave through any global economic downturn, understanding they will be some pain along the way.
I expected the share price to be down significantly more than it was on Wednesday. This could show the support Robert Walters has with investors sitting in the same camp I am in.
I was also going to write about Asos this week, but I need more time. The business says this week that the turnaround is working. They have a return to an operating profit, and the aim is to turn stock into cash. I thought that was the whole point of a business anyway.
It appears that Asos was sucked into the media campaign that the supply chain problems were sticking around for the next several years, over-ordered, and now needs to get rid of it cheaply.
With the consumer returning to the high street and e-commerce sales down, are market conditions wrong for Asos to make that comeback? It’s not for me, but I watch with interest.
This Week I Switched Banks.
Every few years, I switch bank accounts and receive some free money! I’ve just swapped from Nationwide to NatWest and received £200. The process was simple and took me 5 minutes. NatWest carries out the switching process, and I don’t have to do anything. The bank contacts my employer to change account details, as are all direct debits.
The process doesn’t affect my credit score if I do it too often. I usually do it every 18 months to 2 years and have received over £1000 in bonuses over the years.
Every time I switch, I tell friends and family about the scheme and how they could get a free £200, and I am met with the same response every time! “But I’ve been with my bank since I was 16”.
I find this loyalty to some organisation that doesn’t give two fucks about how long you’ve been with them amazing. What has this bank ever done for you since you were 16? Apart from taking your hard-earned wages and lending it to others while raking in massive profits and not giving you anything back for the opportunity.
Save your loyalty for your favourite hairdresser and switch bank accounts when you see offers that benefit you!
