10th Apr '21 by Edmund Shing

17 comments 2805 reads

Chips with Everything!

Summary:

You know that global trade is surging when Deutsche Post beats expectations
Manufacturing runs at breakneck speed
Vaccine progress in Europe accelerates
Inflation: Has remained weak post pandemics, according to GS
Nasdaq trailed Old Europe in Q1, but starts April with a bang

New Podcast: On Bitcoin...

In today’s podcast, Edmund and Charlotte discuss bitcoin.

Bitcoin; Bubble or Anti-Bubble?

What is Bitcoin, in simple terms?
For an investor, what are the advantages and disadvantages?
Is Bitcoin in a bubble?
How bad is the environmental impact of mining Bitcoin?
How can you indirectly play this theme, for growth exposure without all the volatility?

Deutsche Post: Global Canary in the Economic Coal Mine

You know that the global economy is growing quickly when Deutsche Post, the owner of the DHL global logistics network, reports its best-ever results in Q1 2021, beating analysts’ expectations, and raises guidance for the rest of 2021.

Logistics firms Deutsche Post (blue) and Fedex (green) on a bull run

Gs3m__4uJSsueFVo4lU7Ypn4u-kK43a5x0JAM1zBbl1kboL2Uly7qWqKnqWnk7IWSOOxNnl-CKEbgwEhkt3ztDdOpZ0buinhlNXlAxUO0BAXCJMg6TsacuyMnl6D-I9ixt7kOI2Y Source: tradingview.com

To quote Deutsche Post’s CEO:

“The start to the new financial year was more dynamic than ever. It proves that we have successfully geared our business to the right growth drivers. One year into the pandemic we experienced in the first quarter of 2021 a sustained momentum in e-commerce and a significant stabilization in global trade with increasing air- and sea-freight volumes.

Consequently, all divisions reported a significant jump in earnings above market expectations. Global trade continues to recover and vaccine distribution is in full swing which makes me very optimistic for the rest of 2021 and beyond”

The Markit Global Purchasing Manager Indices (PMIs) also reflect this positive global macro momentum, with the Global Composite PMI hitting its highest level in 79 months in March at 54.8, led by manufacturing strength, but now with services catching up fast as reopening progresses in the US and UK.

Global Composite PMI hits a 6+ year high

WdbVVoI1zkkxJKr1q6MoNzFmdfG4znfbJQQPwlYu-gdsvLPZBIsFIASbBWltwrxcRq3hxy5MQO5PEHBjf7GdnG1ZAzRPp18Amh1-7I7d_F0GlScgwAkdk6Dp6J2Q_6jhed0J1UXY Source: Markit

Interestingly, even Tourism and Recreation is picking up, with a global reading at 50 for March, and with reopening in the US and UK occurring now.

Tourism activity rebounding globally

pbjnX9aJzErHzYQ6t2DWw9LPQPRSjr7KjAdbLYAnJfhY6pkZJ8uWdbJ5cIN2wINlcoVCXbvihnVK5mqwC6YZVQgtBnnda3v8P2OLhrXWqTCJctA7nd-vSAUCxCdcK6l9RvfAV-P- Source: Markit

Bottom line, Q2 2021 is shaping up to be a strong quarter for growth in spite of the slow start to COVID vaccinations and toughened lockdown measures…

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Rusty2

10th Apr '21

Vaccinations needs to speed up in the EU, they have made a right mess of it. Deaths have soared in countries such as Poland recently. Italy deaths are back up, over 700 yesterday. Eastern Europe seems to have a problem.

One concern is in Chile which is more advanced than the UK in vaccinations but they have seen a rise in cases and deaths and have gone back into lockdown. I did read that they have been using the chinese vaccine which does not seem so effective.

The UK has done over 36m vaccinations, but it has slowed right down in April, due to a shortage of vaccines.
Deaths in the UK has come right down, to around 30 per day, but it is still quite high in USA.
Brazil has a major problem with around 4,000 deaths per day. Cases and deaths in Asia are shooting up in some countries, look at India, Thailand and the Philippines. I don't think Covid is done and dusted yet.

WarrantStar

I find your articles to be very well written & interesting. Please keep up the good work!

JohnEustace

Total world vaccinations are at 754m doses given to 420m people out of a population of 7.79bn so clearly a long way to go and a lot of opportunities for further spread and mutations.

https://ourworldindata.org/cov...

Bonitabeach

Inflation: Has remained weak post pandemics, according to GS

Inflation in the form of day to day goods and services has remained weak. Labour shows no signs of having the economic muscle to raise wages and hasn't for decades in the USA or UK. The power is all with the holders of capital and the recepients of Joe Biden's handouts will soon be stripped of them by the owners of capital when they are one time spent. Those that have no need to spend their handout will be long term beneficiaries.

It is asset inflation (real estate and equities) that is roaring ahead as the surpluses of the capital rich are invested; as the growth in our own portfolios will testify.

United Kingdom M2 Money Supply Growth

6071a9a8579b7united-kingdom-money-supply

source: tradingeconomics.com

The Rishi Sunak handouts also seem to quickly end up with the already asset rich: they might keep the poor from total destitution but are counter-productively increasing inequality and promoting asset inflation.

I see no easy answers - there appears to be a total imbalance of power between labour and capital in all major economies. Where the money supply growth leads is rising stock and real estate prices until the taps are turned off. A gentle glide path or crash landing? Place your own bets.

I’m expecting that Brexit by reducing immigration will have given pricing power back to people here who provide services that can’t be displaced by imported goods - tradesmen, carers, restaurant staff etc. But it will be a while after reopening the economy to see the effects. At the moment there is talk of 1m people having left the U.K. but very patchy real information because the government stopped collecting what data they did have when the pandemic hit.

I can't see it ever happening for various reasons such as time it takes, then as soon as it has been done once it will be time to do it again, then there will be variants, and cost. I can see many younger people, not bothering, as they won't consider it to be high risk, a bit like flu. Then there are all the third world countries. Even more advanced countries such as Thailand, have hardly done any vaccinations yet and I doubt they will do most adults this year.

So it is going well in the UK and some other countries but the EU has been very slow.

William K

Many thanks Edmund. You've answered all my inflation concerns. Probably a good time to top up on Blackrock World Mining Trust (LON:BRWM) .

Wilbraham

The labour v. capital imbalance shows early signs of correcting, with nascent union membership at Amazon and Alphabet https://www.economist.com/podc... Despite the recent vote at Bessemer https://www.nytimes.com/2021/0... I'd wager the fight will continue, especially with a pro-labour president. Over here, just look at Uber and the recent shying away from Deliveroo Holdings (LON:ROO)

I do feel there's several poorly-appreciated risks in the Big Tech space.

Momoko Miyamoto

I’d be wary of betting on ASML, it trades on a very high PE multiple and has effectively been banned from selling its products to China, which is obviously a huge and growing market for chips and chip making equipment. China is likely to pursue a domestic chip making capability at almost any cost so I would not be surprised to see a state subsidised Chinese competitor appear before too long which may also disregard patents and conduct industrial espionage to meet this goal. Remember what happened to global solar panel manufacturing.

Logical David

An interesting thought....

Two of the worlds largest silicon chip manufacturers are TSMC (based in Taiwan) and Samsung (based in South Korea). You also have other chip manufacturers such as INTEL (INTegrated ELectronics) and Texas instruments which are based in the USA.

However, TSMC and Samsung are working on manufacturing cutting edge 5nm chip fabrication and eventually plan to move to 2nm designs. I understand (but I might be wrong) that they are ahead of the USA when it comes to advance chip fabrication manufacturing.

However, this raises some interesting questions... What would happen to chip prices and ASML share price if China was to invade Taiwan because I believe that China would immediately stop chip exports from Taiwan to the rest of the world, causing further silicon chip shortages??

Also, what would happen to chip prices and ASML share price if North Korea decided to attack South Korea and it destroyed Samsung's chip fabrication factories??

You can see why Europe and the USA need to bring chip fabrication inhouse, even if it means they cannot produce silicon chips as cheaply at TSMC.

ambrosia

did anyone else read about the $40m bet someone has placed that the vix would rise before July.

https://www.reuters.com/articl...

I cant get my head around it, $40m is a lot of money, is it a bet or a hedge

Also, the vix is not backed by any underlying asset its like betting on the weather.

Someone really thinks we have some stormy weather between now and July.

11th Apr '21

The VIX needs only to rise above 25 by mid-July for the bet to be profitable. This has happened six times, at least, in the last year, including twice in the last quarter. (See chart below.) This has occurred whilst the S&P 500 has been rising steadily to record heights. For me, this is an intelligent, high probability win bet and nothing, in itself, to be worried about. The markets will continue to fluctuate regardless of how individuals / fund managers lay their bets. In terms of making a profit, there is no difference between owning an asset and betting on it (apart from the tax liability which is zero if you don't actually own the asset).

timarr

Probably true, but it has to be set alongside the likely increases in unemployment caused by the pandemic and Brexit. If the OBR estimates of a 4% decrease in GDP due to the latter are correct that has to lead to lower wages on average.

In addition higher wages will trigger companies into investing in technology - the cost of warehouse automation, for instance, is falling rapidly and it's becoming accessible to ever smaller businesses. That's good for productivity but not so good for employment.

And, not all jobs can be filled by local labour - in Cornwall daffodil crops are rotting in the fields. Pushing up wages to a level that will attract pickers makes the entirely discretionary end product uneconomic.

History shows that an increasing disparity between the haves and have-nots tends to lead to social unrest. Quite what happens if the Brexit bonus doesn't find its way to the poor people who voted for it is hard to imagine, but I don't think it will ultimately benefit the holders of capital. Although it's hard to imagine the Conservatives losing the next election a failure to deliver the levelling up agenda will put their majority at risk by the end of the decade.

Thornabian

Considering all banking services to EU clients only make up 1-2% of GDP, I think 4% from Brexit is unrealistic. Daffodils and fruit picking certainly don't make up the difference.

Global supply chain improvement and diversification from China (the confrontation that will bring) and the lost services from the pandemic like holidays are far bigger risks to output.

0% freeports, increased state funding of companies, increased R&D credits, reduced taxes and regulation will have a very big impact on boosting the economy if done right. Infrastructure is incredibly important now and my main concern for the UK is not being ambitious enough, as we never are.

Fiscal prudence is important but investing in the right places (like infrastructure) are key to driving long-term growth. We lost a huge amount of GDP through reduced infrastructure spending and increased loan to deposit regulations in the banking system over the last decade.

Like UK investors, our governments tend to lack a long term view and UK growth companies face a steep uphill climb to get the backing to sustain growth and break new markets.

jwebster

"History shows that an increasing disparity between the haves and have-nots tends to lead to social unrest"

Most likely a wealth tax will come. X% of all assets, house included, with a threshold to target the 'haves'.

In the meantime, make hay while the printing press goes brrrrrrrrr........

JCAS

Thanks Edmund, really enjoy these weekly posts. I may also top up Blackrock World Mining Trust (LON:BRWM) - also considering adding Edinburgh Investment Trust (LON:EDIN) to my ISA which has plenty of exposure to these cyclical areas. Any other IT's of interest I'm all ears!

Hi Thornabian

I don't think that's what the 4% means. I believe it's the reduction in GDP over what would otherwise have been expected over the next decade. -4% seems to be about where most independent estimates have settled. The immediate 3 month impact is -0.5%, although how that's disentangled from the pandemic I can't imagine.

Market Musings 10/04/21: Chips with Everything!

Chips with Everything!

Summary:

New Podcast: On Bitcoin...

Bitcoin; Bubble or Anti-Bubble?

Deutsche Post: Global Canary in the Economic Coal Mine

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Edmund Shing

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