Small Cap Value Report (Wed 6 Jan 2021) - QE, HEAD, TPT, CLG

6th Jan '21 by Paul Scott

164 comments 10976 reads

Good morning, it's Paul here with the SCVR for Wednesday.

Timing - I've started early again today, so should be mostly done by 1pm. Today's report is now finished.

Agenda -

Headlam (LON:HEAD) - operational update - business as usual

Topps Tiles (LON:TPT) - Q1 (13 wks to 26 Dec 2020) trading update

Clipper Logistics (LON:CLG) - slightly confusing trading update

US Senate Elections

I was up most of the night following the US Senate elections in Georgia, because that could be important for the US market, determining whether President Biden is able to push through massive stimulus & infrastructure programs, and tax rises for companies & the wealthy. Or whether a Republican Senate could block or tame his policies. Opinion seemed to be divided amongst US commentators, on which outcome would be good for the economy and stock markets, so I ended up retiring rather confused.

Monthly GDP - UK

Whilst browsing the ONS website last night, waiting for something to happen in America, I happened to come across an interesting graph (see below) re UK GDP, measured monthly. This runs from Jan 2007 to Oct 2020.

You can see the first dip for the financial crisis from mid-2008 to mid-2009. Compare that with the unprecedented stoppage of the economy due to covid/lockdown 1, in early 2020, with a massive plunge down in GDP, with about a quarter of GDP vanishing from high to low.

However, the graph then more recently clearly shows a V-shaped recovery in GDP. It wasn't all the way back up by end Oct 2020 (where the data runs out), but it had recovered most of the way.

I admit to being sceptical about the possibility of a V-shaped recovery, back in mid-2020, but I was wrong, and a V-shaped recovery is what has actually happened. That's what the stock market recovery told us would happen, and the market was right. I wish I'd looked more closely at GDP data last summer, as that might have stopped me continuing to fruitlessly short the indices over summer 2020, which was an expensive mistake (albeit funded by profits from earlier very effective hedging).

As mentioned yesterday, it's always better to focus on what is actually happening, rather than having a theory as to…

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mevans6890

6th Jan '21

The IEA is a right wing think tank which receives funding from the tobacco industry. What they are not doing is providing objective impartial analysis but merely doing what those funding them expect.
why has this investment site become a home for those seeking to communicate political propaganda.

Dojosan

Viewpoints from experts on the macro side - if anyone is interested

https://www.voxmarkets.co.uk/m...

Paul Scott

Interesting article, thanks EdmondJ. It echoes my view on reading the Kelton book, that it's wide-eyed revelation that Govt spending comes first, and taxation is just used to keep inflation under control, struck me as pretty ridiculous. As your article points out, Govt spending and taxation occur in lockstep, all the time. Neither happens before or after the other, they happen at the same time!

I feel that Kelton's book is inconsistent. The main message of the book is that Govts can spend on anything they want, with no limits. Then she contradicts herself by saying that QE has to stop if inflation takes hold. The problem with that, is if you look back at what actually happens when inflation takes hold, it becomes almost impossible for Govts to reduce spending & stop money-printing, because the automatic stabilisers kick in, and public spending inevitably shoots up once inflation takes off - e.g. public sector payroll costs go through the roof with inflation-linked pay rises, workers go on strike if they are not given pay rises, unemployment rises as businesses go bust. etc. Hence it seems very naive of Kelton to imagine that Govts could just stop money-printing at will. History shows us that simply doesn't happen.

I've been reading the (very heavy going!) Charles Moore 3-volume authorised biography of Thatcher. The battles her Govt experienced from 1979-82 to control inflation & rein in Govt spending, were very severe. All MMT supporters should be encouraged to read up on that!

My view is that, given we don't know where the limits of QE actually are, then it should be used with caution. If inflation is set moving, it becomes self-fuelling, and the consequences are catastrophic. Since my trip to Zimbabwe in 2019, the currency there has devalued to only 1/25th of what it was worth at the time I visited. Apparently now, the situation is unthinkably bad, with a lot of the country in semi-starvation, and reduced to begging.

Is it really worth risking hyper-inflation here by being aggressive about QE? I'd say not. However, using QE in emergencies, for limited periods, seems very sensible.

Regards, Paul.

shipoffrogs

I've ordered the book on your recommendation as I've seen it being referenced a lot lately and to see if it dispels my ignorant view that it's just a belief in magic or alchemy.

mojomogoz

Phew!

Some days I follow the flow closely and then I can easy keep a thread. Other days when I scan as busy elsewhere (or concentrating and not looking for distraction!) I do find some of the topics and tit for tat as you put (I'm not without sin) a barrier. C'est la vie!?

Ha ha...yes! No-one took me up on my one whole pint bet.

And my point wasn't that the banks are obviously fantastic...it was more putting the crapiest of the crap up against the shiniest of the shiny for 2021 -> Lloyds Banking (LON:LLOY) vs £THG

But I do have a piece of a number of banks with a view to them being a really strong decade bet (I'm up near 50% as bought near lows!). It's partly value, neglect and that they have cleaned up a lot...and its partly ebb and flow of markets over time and a vibe that banks will find themselves useful again. Its quite hard and costly to disintermediate their credit-money creation and if they don't create money then we will struggle to grow.

Millbank - IMH - the fundamentals are the most important - regardless of whether SP goes ex-div / consolidation. BTW, GL with the Indian arbitration - I reckon it's going to take another 3-4 years for outcome of a future appeal by the Indian gov.

rmillaree

No-one took me up on my one whole pint bet.

Dang i live for one pint wagers - i hate the nightmare distraction of tax returns in Januarys - i miss all the good things in life - a free pint from mojomogoz would have been nicely savoured - ideally chocolate orange marshmallow plum porter please,

MiserableJacktPotato

Ah, so you’re the reason Thornabian accused me of being a bank stock buyer :D

Jordan B Peterson states the disagreeable types generally earn more

Crushing accusation for many...

Same SP rises with Gaming Realms (LON:GMR) and Gfinity (LON:GFIN) (not so much)

Its open...you can take Thg Holdings (LON:THG) side if you wish....despite today's bank fireworks THG does have ytd (2 day!) lead.

I feel more foolhardy than truly confident...but that's not uncommon

I make no statement about whether he’s right or wrong.

But I have plenty of racey stocks in the punts portfolio even if I did have some “boring” stocks

Hence, my dip of my toes into Eddie Stobart Logistics (LON:ESL) , comes with a lot of baggage but surprisingly the company appears to have made a strong turnaround with strong figures out recently.

Bike21

Democrats have won Georgia. I assume green energy stocks to go gang busters up?

harvs19

I think you're forgetting that the £15k stamp duty has to be paid upfront when purchasing. The stamp duty holiday means buyers dont have to the burden of finding an extra £15k on top of their deposit. If the house price increases by £15k this can be added to the mortgage e.g. on the basis of a 10% deposit the buyer only has to find an extra £1.5k. Quite a big difference and definitely beneficial to the buyer.

Pro Bono

Am I alone in thinking there's something a bit sleazy about going into a shop, looking at the product, getting advice from the sales staff and then going home and ordering the product from an online competitor?

GrahamF

No, you’re not alone.

However, in the case of Tile Mountain they do have three very large stores. So, they are a physical retailer too but the prices are more like an online only business. I wouldn’t buy without seeing the product displayed. Although Tile Mountain were a long drive away for me the saving more than covered that cost.

Vsihv

7th Jan '21

Thanks doublelutz

As my wife might say, maybe its not what I said but how I said it - thought people would be more tolerant of Glib on a day when the market was up.

TBH, down votes don't bother me, prefer up (not quite a sociopath) but it is the ignominy of nothing that really grinds my gears!

Small Cap Value Report (Wed 6 Jan 2021) - QE, HEAD, TPT, CLG

US Senate Elections

Monthly GDP - UK

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Paul Scott

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