AU ED G IT 14 IO N The e-magazine created especially for active spread bettors and CFD traders
Issue 31 - August 2014
An SBM Special Top Picks for H2 2014 Ideas galore for your trading! www.financial-spread-betting.com
THE UK’S ONLy FREE ONLINE FINANCIAL MAGAZINE! WHEN IS SPREAD BETTING NOT SPREAD BETTING?
A SHORTING SPECIAL - GOTHAM CITy & MUDDy WATERS IN THE SPOTLIGHT
ZAK MIR INTERVIEWS CAMERON MALIK
DOTCOM BUBBLE 2.0 - SOCIAL MEDIA STOCKS
AND MUCH, MUCH MORE - PACKED FULL OF TRADE IDEAS FROM ALL OUR CONTRIBUTORS!
Feature Contributors Robbie Burns aka The Naked Trader Robbie Burns - The Naked Trader has been a full-time trader since 2001 and has made in excess of a million pounds trading the markets. He’s also written three editions of his book, “Naked Trader” and the “Naked Trader Guide to Spreadbetting” and runs day seminars using live markets to explain how he makes money. Robbie hates jargon and loves simplicity.
James Faulkner A true stockmarket anorak, James Faulkner began investing in the stock market in his early teens. James is a devotee of the PEG-based growth investing model pioneered by Jim Slater in his seminal book, The Zulu Principle, while also being t1ps.com’s resident economic ‘guru’. James is an Associate of the Chartered Institute for Securities & Investment and holds the CISI Certificate in Investment Management.
Richard Jennings Richard was the founder and original inspiration behind Spreadbet Magazine. A prolific trader for many years and former institutional fund manager, he holds the CFA designation and now runs the unique tax free investment house www.titanip.co.uk. A natural contrarian and true to his yorkshire roots, his primary investment approach is of a value bias.
Samuel Rae Having completed his Economics BSc Degree in Manchester, Samuel Rae quickly discovered that the retail Forex industry was for him. His personal trading style combines classic candlestick analysis with a simple, logical and risk management driven approach to the financial markets - a strategy that is described and demonstrated in his best selling book, Diary of a Currency Trader.
Alpesh Patel Alpesh Patel is the author of 16 investment books, runs his own FSA regulated asset management firm from London, formerly presented his own show on Bloomberg TV for three years and has had over 200 columns published in the Financial Times. He provides free online trading education on www.alpeshpatel.com.
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Editorial List EDITORIAL DIRECTOR Richard Gill
Foreword I would venture to suggest that in order of ascending difficulty we have: passing the Pepsi Challenge, predicting the result of next year’s UK General Election, climbing the North Face of the Eiger and making a call (whether correct or not) on the financial markets for the rest of 2014.
EDITOR Zak Mir CREATIVE DESIGN Lee Akers www.cfdmedia.co.uk COPyWRITER Seb Greenfield EDITORIAL CONTRIBUTORS Alpesh Patel Richard Jennings Filipe R Costa Simon Carter James Faulkner Samuel Rae Dave Evans Patrick Callaghan Jim Mellon
Disclaimer Material contained within the Spreadbet Magazine and its website is for general information purposes only and is not intended to be relied upon by individual readers in making (or refraining from making) any specific investment decision. Spreadbet Magazine Ltd. does not accept any liability for any loss suffered by any user as a result of any such decision. Please note that the prices of shares, spreadbets and CFDs can rise and fall sharply and you may not get back the money you originally invested, particularly where these investments are leveraged. In comparing the investments described in this publication and website, you should bear in mind that the nature of such investments and of the returns, risks and charges, differ from one investment to another. Smaller companies with a short track record tend to be more risky than larger, well established companies. The investments and services mentioned in this publication will not be suitable for all readers. you should assess the suitability of the recommendations (implicit or otherwise), investments and services mentioned in this magazine, and the related website, to your own circumstances. If you have any doubts about the suitability of any investment or service, you should take appropriate professional advice. The views and recommendations in this publication are based on information from a variety of sources. Although these are believed to be reliable, we cannot guarantee the accuracy or completeness of the information herein. As a matter of policy, Spreadbet Magazine openly discloses that our contributors may have interests in investments and/or providers of services referred to in this publication.
The final task is one that I have just delivered in the form of a trading guide, which is hot off the press. Equally hot, and off the same press, is of course the latest edition of Spreadbet Magazine. This is a unique publication, which I state repeatedly to all those who are willing to listen. I feel qualified in this respect because unlike many in the financial services industry who might be equally happy (or unhappy) in any other sector which earned them a crust, I am essentially the personification of the end user. Unfortunately, the private investor is not perhaps as highly regarded as they might be. In turn we see content aimed at them being dumbed down, rendered dull, overly sensationalised, or simply inappropriate or irrelevant to one of the most difficult tasks in the world – speculative trading and investing. The fact that Spreadbet Magazine continues to maintain the same over delivering of content and insight which attracted me to it some two years ago is something which I am very proud of. The backbone of the content and its unique attitude continues to come from the founder of the magazine, Richard Jennings, who has put his money where his mouth is via his tax free spreadbet based fund – Titan - in terms of making calls on the market. This fund has massively over-performed its peers over the past year, and we remain privileged that someone who has such insight remains committed to regular contributions to Spreadbet Magazine. I commend his blogs to you. They are a rare gift in a time of social media overload. On a more sullen theme, we are at the time of writing in the immediate aftermath of the MH17 airline tragedy. This looks to be a defining moment, not only for Russia’s position in the world, but also for the financial markets. It is the direct result of the Putin “victory” in Syria, when he maintained the Assad regime, and began a new world “disorder”, putting the former Soviet Union effectively back on top. One can say that if the equity markets can shake off the aftermath of this horror, they can shake off anything. That is not to deny that the “wall of worry” cliché, which stocks have managed to ascend over the past five years, is already effectively in the stratosphere. This is especially so if one considers not only Ukraine, but also Gaza and the Isis expansion. The message would appear to be that in an era of ultra low interest rates, which still refuse to be stretched higher, a multitude of otherwise fatal blows could be struck to the bulls without any significant consequence. Enjoy this month’s issue and happy trading. Zak
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Contents
Are short sellers vigilantes or villains? Fund manager Richard Jennings looks at the case of Gotham City Research, Muddy Waters and other investment “super-heroes”, and asks whether they are fighting for good or evil.
16 Zak Mir interviews Cameron Malik
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SBM editor Zak Mir interviews trader and founder of Magnetic Trading, Cameron Malik.
Premier League spread betting preview Patrick Callaghan of Sporting Index provides tips and analysis on the upcoming Premier League season.
Three mid-cap stocks for H2 Richard Gill of t1ps.com looks at trading ideas for the second half amongst London’s mid-tier firms.
Alpesh Patel on the Markets Regular SBM contributor Alpesh Patel continues the H2 top picks theme and gives his ideas for the second half of the year.
The inevitable road to deflation or hyperinflation Will recent Fed policy see us condemned to hyperinflation or deflation on a massive scale? Read the argument here.
Three small-cap stocks for H2 James Faulkner of t1ps.com analyses three small cap stocks set to do well in the second half of the year.
Shiller P/E points to an imminent crash The common valuation metric suggests that markets are due to tumble. Filipe R. Costa does the analysis.
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A new approach to social media stock valuation
Mellon On Markets Multi-millionaire entrepreneur Jim Mellon provides his own thoughts and analysis on the markets as we progress into the summer.
Linkedin, Twitter, Facebook how should they be valued? Richard Jennings suggests a new way.
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When is spreadbetting not spreadbetting? In his second article this month Richard Jennings looks at how investors can benefit from the advantages of spreadbetting via his Titan funds.
The Best of the Evil Diaries Highlights of what infamous short seller Simon Cawkwell (aka Evil Knievil) has been trading and gambling on in July.
Zak Mir’s Monthly Pick Following the recent change in management, Zak Mir’s top pick for August is Gulf Keystone.
Binary Corner Dave Evans of binary.com asks how the traditional “sell in May” advice has worked and looks how to play the markets this summer.
Currency Corner New SBM contributor Samuel Rae, author of the best selling book “Diary of a Currency Trader”, gives us his top two picks for the second half of the year.
Technology Corner: The next big thing Back by popular demand, our resident technology expert Simon Carter asks what gadgets the punters will want to get their hands on next.
Markets in focus A comprehensive markets round-up of under and out performers during the month of July.
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Titan Investment Partners
WHEN IS SPREAD BETTING NOT SPREAD BETTING? By RICHARD JENNINGS CFA, TITAN INVESTMENT PARTNERS
What if there was a way a completely legal way to invest as much as you wanted in the stock market and totally tax free*? you will note that we purposely use the word “invest” here too and specifically not “speculate”.
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When is spread betting not spread betting?
What if you were also able to access professional ex-institutional fund managers with experience in managing hundreds of millions of pounds and with many years of plying their trade in the markets under their belts. How about the same entity offering (via their partners) the opportunity of borrowing rates of a little over 2% (based on current interest rates) to enhance the returns profile? Try walking into your bank and saying that you would like to invest in a fund and that you’re looking to borrow at these type of rates and let us know how long it takes for the bank manager to show you the door!! Finally, if we were to tell you that the fund managers of such an offering are almost predominantly paid on results, have a decent amount of their own capital invested in these funds, and that the offering was fully FCA regulated and comes with the safeguards of the FSCS, would it not make the traditional avenue of largely underperforming unit trusts seem a little dull in comparison? The icing on the cake is that during this fund manager’s first full year of operations they had beaten their peers and benchmarks by a very wide margin.
There is in fact such an offering that has now become available to the UK investing public and that is creating quite a stir in fund management circles... Titan Investment Partners very simply uses the mechanism of a spread betting account to transact trades on behalf of their clients. It is very important to stress however that the way our client accounts are managed is very far removed from a typical spread bettor’s approach though. That is the leverage used here at Titan is dialled back dramatically. There are usually both long and short positions (in certain funds) in place, a good degree of diversification, risk modelling and thorough research. This is not meant to denigrate the typical spread bettor, but anecdotal evidence reveals that the very, very vast majority do not make money. Just take a look at the published accounts of IG Index! Below is a table of returns generated during the first year of operation by Titan Investment Partners within their Global Macro fund and also their respective peers and benchmark returns over the same period.
“This is not meant to denigrate the typical spread bettor, but anecdotal evidence reveals that the very, very vast majority do not make money. Just take a look at the published accounts of IG Index!” Returns are gross before application of Titan’s fees
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Titan Investment Partners
Real time viewing of accounts & client testimonials Perhaps also equally interesting to Titan’s clients is the ability to view their account and all the individual positions in real time. In effect, clients can see Titan’s fund managers at work in the markets as it happens and perhaps even learn about trading along the way without having to pay thousands of pounds to a so called “guru” who will purport to explain to you how you can trade your way to millionaire status in a few months from a two day seminar… Purlease! We would argue that we have, here at Titan, one of the most transparent fund management offerings in the marketplace today.
“In effect, clients can see Titan’s fund managers at work in the markets as it happens and perhaps even learn about trading along the way without having to pay thousands of pounds to a so called “guru” who will purport to explain to you how you can trade your way to millionaire status in a few months from a 2 day seminar… Purlease!!” One Titan client makes the following comment in relation to his experience of our fund management offering – “within about 24 hours of a trade being made (long or short) you have the full details of what was bought, when and how much was paid (how many other funds give you that transparency?)” another makes the following comment – “If you’re really keen, you can login to your fund accounts and watch their value go up and down second by second. I’ve been studying spread betting as a trading vehicle and Titan has helped me understand far better the importance of only making sensible use of the leverage available and not to over extend my other trading.”
Other comments made by Titan’s current clients include – “Daily changes in values can be significant relative to the individual size of the Funds due to leverage, but it works both ways (normally) and so a long term view of investing is a must. There’s a ‘true’ Hedge-fund feel about the way the funds are run. I particularly like the use of short-term options as a means of generating a return but which are naturally limited in the size of the risk.” We stress here at Titan to all our clients that the funds are to be viewed as medium term investments and not in one week, and out the next. We are not “trading” per se, although we do use options extensively to trade around our positions. Additionally, where leverage is used, then returns to both the upside and downside are magnified. While we may have outperformed materially over the last year, we have not rewritten the fundamental law of investment, that is, reward is directly correlated to risk.
“If you’re really keen, you can login to your fund accounts and watch their value go up and down second by second. I’ve been studying spread betting as a trading vehicle and Titan has helped me understand far better the importance of only making sensible use of the leverage available and not to over extend my other trading.” For clients prepared to take an 18 month+ view then through our asset allocation based approach we expect to deliver absolute returns. Additionally, unlike most other long only funds, the ability to go short holds out the possibility that we will generate positive returns even if the market falls – an approach that we were successful with at the turn of the year when we moved to a net short position days before the US market took a decent tumble.
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When is spread betting not spread betting?
An early stage client, Mr Thompson made the following remarks – “I’m invested in the Macro Fund and ‘love’ the high return that the fund has made. Similarly, the Natural Resources fund has done well in a tricky market. I get a statement of my positions daily and the Agency agreement with the Spread Betting company means that there is a good separation between the Fund Managers and the custodians. Additionally, there’s a non-recourse agreement funded by slightly wider margins so I’m only risking the size of the fund at any stage.”
Titan Funds – a complement to a balanced portfolio We take our authorised status here at Titan very seriously and ensure that the investments made by clients into our funds is “appropriate”. That is that they are not risking more capital than is appropriate for their circumstances. Our funds were created to be a complement to an existing balanced portfolio and not a replacement. In exchange for a higher degree of risk we endeavour to produce higher returns, and in a tax free manner. In effect a type of “uncapped ISA” is offered. The following statement from another client sums up this concept pretty well - “As a higher-rate tax payer with a good SIPP balance and fully utilized ISA allowances, rather than add more money to my SIPP I decided to see if in effect by using the spread betting mechanism I could invest money free of any capital or income taxes. Also, I was happy with the concept that the Directors of Titan invested their own money in the funds thus ensuring a reasonable alignment of their interests and mine.” Next time you receive a telephone call from a “CFD Advisory” firm (very likely a 20 something year old with the collective experience in the markets of diddly squat) ask them (a) for a verified returns record, (b) client testimonials and (c) how much of their money they are prepared to put behind the investment idea they are pushing to you. As industry insiders, we know that, again sadly, the very, very vast majority of clients of these CFD firms do not make positive returns and indeed we believe here at Titan that it is high time that the FCA looked more closely at this area of the industry.
The Titan Investment Approach When asked by some potential clients in recent weeks what our investment modus operandi is, for example is it “thematic”, “momentum based”, “algorithmic” etc?
“As a higher-rate tax payer with a good SIPP balance and fully utilized ISA allowances, rather than add more money to my SIPP I decided to see if in effect by using the spread betting mechanism I could invest money free of any capital or income taxes. Also, I was happy with the concept that the Directors of Titan invested their own money in the funds thus ensuring a reasonable alignment of their interests and mine.” Our response, certainly in relation to our Global Macro account, is that we are not “pigeon-holed” by one particular style. At our heart however is asset allocation with a value bias. Empirical evidence has proved that the vast majority of investment returns in a portfolio are derived from the asset class, essentially a rising tide lifts (almost) all boats, while vice versa a sinking ship takes all down with it (rats and all!!). Asset class dislocations occur all the time and the exploitation of this dislocation is, in our opinion, the only way to outperform over the medium term – find an investment class that has deviated materially from its fundamental value. Analyse the reasons for the deviation and assess the probability and timescale of reversion to fair value. Position oneself in the best manner to exploit this and apply leverage judiciously. Thus, in our flagship fund where we are not constrained by asset class, we are able to “bend in the wind” and are not constrained by a rigid approach.
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Titan Investment Partners
Take for example the travails of hedge fund goliath Man Group’s “black box” algorithmic based fund - AHL Diversified, and which has stuck doggedly to an algorithmic based investment approach over the last five years and has underperformed massively in the process as the table below illustrates.
MAN GROUP AHL RETURNS
1, 3 & 5 year returns to end June 2014 (5 yr return from 30/11/09)
To illustrate further our investment approach, take a look at the diagram below. If conditions are conducive to being short certain stocks for example, in our Global Macro we would look to exploit this - if interest rates are to rise materially in our view, we would take an appropriate position in bonds and interest rate futures.
INVESTMENT APPROACH DIAGRAM
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We are, after all, searching for one thing – absolute gains in all market environments. As Gordon Gekko once said – “lunch is for wimps”, our mantra is “relative performance excuses are for closet indexers”!
When is spread betting not spread betting?
“We are, after all, searching for one thing – absolute gains in all market environments. As Gordon Gekko once said – “lunch is for wimps”, our mantra is - “relative performance excuses are for closet indexers”! So you can see, in this particular instance, the use of a spread betting account here at Titan to actually invest is very far removed from the traditional approach to spread betting. To learn more about how you can invest alongside us in our unique funds click the banner below or email us at info@titanip.co.uk with the words “OPEN EVENING” if you would like to register for one of our forthcoming open evenings to learn more about our company and funds.
* All Titan Funds operate within a spread betting account which means gains or losses are currently free of tax. However, legislation can change in the future. Spread betting is a leveraged product which could result in losses of some or even all of your initial deposit. Ensure you fully understand the risks.
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INVESTMENT PARTNERS Specialist Tax Free Fund Managers
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+103.54%
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PREC METALS
+44.40%
ARCA Gold Bugs Index (constant $‘s) +4.77%
SMALL CAP*
+6.25%
FTSE Small Cap Index +8.88%
Past performance is not necessarily a guide to the future. Gross fund returns (before Titan’s fees) from inception (01/07/2013) to 25/07/14. *Returns from 01/08/13 to 25/07/14.
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Risk Disclaimer - Titan’s funds use a spread betting account and are leveraged products that
capital invested. Ensure that you fully understand the risks and seek independent advice if n Authorised and regulated by the FCA. Registration No - 590782 14 | www.financial-spread-betting.com | August 2014
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necessary. *Spread betting in the UK is currently tax free but this may change in the future. August 2014
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From Muddy Waters to Gotham City
From Muddy Waters to Gotham City
Are short sellers Vigilantes or Villains? By Richard Jennings CFA, Titan Investment Partners, & Filipe R. Costa
In a world where financial scandals, liquidity squeezes, sanguinary crashes, and many other irregularities guarantee large swings in share prices and the expropriation of individual investors’ wealth, someone should be vigilant and protect the weak, as a means of restoring financial justice.
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Are short sellers Vigilantes or Villains?
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From Muddy Waters to Gotham City
When securities and exchange commissions fail to prevent irregularities, it seems we still have another layer of protection afforded by a few righteous super-heroes that aim to bring down the villains from within the business world. Errant executives, compliant auditors, dormant regulators, and crooked bankers who benefit from their own wrongdoing should all beware because a new group of financial vigilantes will punish them and restore justice. Enter stage left one Gotham City Research. I guess many of you will immediately associate the name with Batman and his battle to reclaim the streets from murderers, robbers and other crooks. But when associated with the financial world, Gotham City is no longer the backdrop for Batman’s actions but rather the name of a company, group, or super-hero outfit, which aims to expose the crooks of the financial world – a new kind of super-hero acting under a real-world scenario!
Real life Robin Hoods or capitalist opportunists? Specialist investment firms like Gotham City target public companies that are growing rather suspiciously fast, searching for clues in accounting irregularities. They scrutinise all publicly available information in an attempt to find something that the others missed. Ultimately, they unearth before the rest of the market whether a company is cooking the books. Here at SBM we feel that they fully deserve the spoils for getting it right. Still, the link with super-heroes ends here. While Batman would attempt to freeze crime and wrongdoing without directly benefiting from it, these investors are not so altruistic. As relayed, they actively sell the shares of the ‘fraudsters’ before exposing them. The final goal is the same as always: to make as fat a profit as possible. Gotham, and others, adopt very aggressive strategies aimed at profiting from the anticipated declines but also accelerating the process through publicising their reports. Under certain conditions, short sellers may even collude with others to induce a faster price movement, something which often results in heavy losses for individual investors who perhaps were not as clued up as to what was happening within the company. Even in cases where prices recover again, with many more leveraged trades around these days and so trading on margin, the declines trigger stop losses and so force many investors out of their positions, not allowing them to benefit from a subsequent recovery.
During the last few years, Gotham City has probed where others have feared to venture, exposing scandals and frauds within several publicly traded companies. In the end, many of these companies have filed for bankruptcy protection or at least saw their shares battered down to near zero. And, of course, Gotham City’s founder – one Mr Daniel Yu took the opportunity to short sell shares of the alleged crooks and in the process enrich himself with the spoils of victory. These included a rather swanky Manhattan pad – how very apt as “the Big Apple” is deemed to be the inspiration for the fabled Gotham City.
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Short selling is a controversial tactic employed by investors who wish to profit from the downfall of a company’s share price. Theoretically, short-selling assumes a very important role in financial markets, in particular to drive prices towards rational values and to prevent bubbles and subsequent crashes from occurring – see our piece on the madness that was CYNK Technology HERE http://www.spreadbetmagazine.com/blog/titan-inv-partners-the-curiouscase-of-cynk-technology-and-t.html). Sophisticated arbitrageurs would short sell shares they believe are rising too fast and where price is higher than intrinsic value, thus contributing towards helping prices stabilise at their true value. Absent short-selling, if CEOs, investment bankers and other potential interested parties wanted to artificially drive the price of a company’s shares higher they would, in fact, only face the opposition of those who already own shares.
Are short sellers Vigilantes or Villains?
However, short-selling may also be used to destroy a good firm, pressing its stock down and in fact precipitating trouble that wasn’t actually warranted. In such cases, short-selling is not an action taken as the result of valuation analysis but rather a military tactic. “Malicious shorting is built on assuming the high moral ground of unearthing malpractice. The reality is that, far from being the Robin Hoods of the financial world, they are actually following a well-planned, co-ordinated and executed formula to maximise returns for themselves, usually to the detriment of the private investor and the companies they target.” These words were from one investor who lost money at the hands of Gotham’s research.
Gowex – a major scalp for yu
Notwithstanding the ultimate aim pursued by Gotham, the company has indeed exposed some important wrongdoing. In a recent investigation of Spanish Wi-Fi Gowex, for example, it uncovered several irregularities. Gotham said it spent over eight months investigating public files and online information on Gowex. It noted that Gowex was using a small firm of accountants rather than a big, established firm, which is a common warning sign for financial overstatement. As it proceeded with the investigation it uncovered additional warning signs. Initially, Gowex refuted Gotham’s allegations, but a few days later the company’s CEO confessed that Gowex’s accounts were fake, before declaring the company insolvent. That was a serious scalp for Daniel yu.
Earlier this year, Gotham turned its guns on a home grown British outsourcing company - Quindell, accusing it of being “a country club built on quicksand” and having a fair value share price of 3p instead of the 39p at which it was quoted at that time. That is some assertion…
“wheTher The claims made in The reporT are fair or noT remains To be seen, buT whaT is noT in doubT is ThaT goTham have accumulaTed a large bag of profiTs so far. in This case The line ThaT separaTes valuable research from shorT-Term and disTorTive pracTices is very Tenuous.”
While Quindell refuted the allegations, the company wasn’t able to prevent a £1 billion reduction in its market cap and its legion of private shareholders seeing their holdings decimated almost overnight. As you can see from the chart overleaf, after Gotham published a report on Quindell in April, its shares were battered down and, at the time of writing, have yet to recover. Whether the claims made in the report are fair or not remains to be seen, but what is not in doubt is that Gotham have accumulated a large bag of profits so far. In this case the line that separates valuable research from short-term and distortive practices is very tenuous.
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From Muddy Waters to Gotham City
QUINDELL CHART
Other Vigilantes Gotham City is not alone in the shorting game however. Other companies have been successful in unmasking several fake businesses that were cooking the books. One of the most well-known companies is Muddy Waters, owned by a former Shanghai-based lawyer Mr Carson Block. The company came to prominence after it uncovered the multi-billion dollar Ponzi scheme that was Sino-Forest. The Chinese timber merchant was accused by Muddy Waters of inflating earnings and land prices to drive its share price higher. Just nine months after the report was published, Sino-Forest declared bankruptcy and in the process cost one Mr John Paulson “the sub-prime King” hundreds of millions of dollars and a knock to his reputation – no mean feat! Citron Research, owned by Andrew Left, is another company dedicated to uncovering wrongdoing. It mostly targets Chinese companies, in particular those that appear to grow too fast, literally out of thin air.
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MR CARSON BLOCK
Are short sellers Vigilantes or Villains?
“as relayed in our oTher piece on The shiller pe raTio measure, anybody who believes in The bullshiT ThaT is “efficienT markeTs Theory” frankly deserves To lose money. They are far from efficienT and humans do noT acT raTionally, cerTainly when money is concerned.”
Alfred Little, is also another research company, which imparts “short” trading opinions, and also focuses on Chinese companies. you will see the common theme here – China. Perhaps Anthony Bolton should employ one of these chaps instead of his current analysts and try and wipe the extensive egg that sits on his face since his foray into China near the peak five years ago…
Conclusion Cases like Gowex, Quindell, and Sino-Forest have displayed the fragility of our whole financial system. In a world where investors are rational - as predicted by the Nobel Prize winner Eugene Fama - the presence of buyers and sellers who analyse all publicly available information should be enough to prevent sudden crashes, scandals, and many irregularities and anomalies. As relayed in our other piece on the Shiller PE ratio measure, anybody who believes in the bullshit that is “Efficient Markets Theory” frankly deserves to lose money.
They are far from efficient and humans do not act rationally, certainly when money is concerned. If Muddy Waters and Gotham can uncover irregularities using publicly available information, the efficient markets hypothesis is literally discredited beyond recovery. The truth is that most investors just follow the herd. They are cannon fodder for the sharks, who are able to manage the market and benefit from all price anomalies, to the cost of the majority of individual private investors. Investors’ irrationality enables companies like Sino-Forest to extract wealth from investors. The same irrationality also allows companies like Gotham City to extract the remaining wealth. Make sure you are not the mug at the table in the game of investing!
* All Titan Funds operate within a spread betting account which means gains or losses are currently free of tax. However, legislation can change in the future. Spread betting is a leveraged product which could result in losses of some or even all of your initial deposit. Ensure you fully understand the risks.
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August 2014
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Sporting Index
SPORTING INDEX
2014-2015 Premier League Spread Betting Preview BY PATRICK CALLAGHAN
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Sporting Index
Last year was one of the most dramatic Premier League seasons for a long time. Arsenal, Liverpool and Chelsea all looked likely winners at different points of the campaign before Manchester City, the club that had spent the least time at the head of the table, came with a late run to deny them all. It was also a defining season for a number of reasons. This was the year the most dominant team in English football, Manchester United, surrendered their position, finishing seventh, their worst standing since 1990. By contrast, their biggest rivals Liverpool put up arguably their best performance since they last won the title in 1990. And if it wasn’t for Steven Gerrard’s cruel slip against Chelsea that let in Demba Ba to score a crucial goal, the club would probably be heading into the new season as reigning champions. There were also surprisingly strong showings from teams like Southampton and Everton, while Crystal Palace pulled off an incredible escape from relegation. Spread bettors who had bought the Eagles at 55 on the 60 Relegation Index back in November, when the team had taken just seven points from 12 games, were left counting the cost. Tony Pulis dragged them up to a very respectable 11th – meaning they made up 0 on that market. So where do spread bettors begin ahead of the new season which kicks off on 16th August?
“mourinho has won seven league TiTles since 2002 and looks To have a more balanced squad Than lasT year, wiTh The righT blend of youTh and experience.” It can be argued the lack of a top-class striker cost Mourinho’s men the league last season and the addition of a proven hitman in Costa is a necessary move. Felipe Luiz looks a good signing as replacement for Ashley Cole at left-back and the club’s hierarchy, and football fans across the world, will still be wondering quite how Chelsea managed to get £50 million from Paris St-Germain for the errant David Luiz. Mourinho has won seven league titles since 2002 and looks to have a more balanced squad than last year, with the right blend of youth and experience. However, I don’t see why Manchester City can’t win successive titles.
Chelsea will be favourites on the Championship 60 Index after a decent showing last term. Jose Mourinho has brought in two big signings in the shape of Cesc Fabregas, the former Arsenal man who couldn’t hold down a starting place at Barcelona, and Diego Costa, top-scorer for surprise La Liga champions Atletico Madrid.
They were far from the finished product in 2013-14, but their attacking riches carried them over the line, helping the side score a whopping 102 goals. The Citizens also had the second best defensive record. That was all despite being without big names like Sergio Aguero, Alvaro Negredo and Vincent Kompany for large parts of the season. A poor away record in the first half of the campaign can certainly be improved upon and they’ll be confident as defending champions.
August 2014
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Sporting Index
“The lead will almosT cerTainly change hands several Times. lasT season proved The Topsy-Turvy naTure of england’s firsT division.”
Joe Hart was far from flawless and the arrival of Willy Caballero will keep the pressure on England’s number one. Reinforcements in Fernando Reges and Fernando will bolster what was already the best midfield in the division. If Aguero can stay fit, and Eden Dzeko can consolidate the form he showed in the last few months, then Manuel Pellegrini’s troops look best-equipped to win the league. Spread bettors can take the decision to cash out for a profit or restrict a loss at any time during an event. The very nature of a football season makes this a great tool. The lead will almost certainly change hands several times. Last season proved the topsy-turvy nature of England’s first division. Arsenal went on a fine run early on and went as high as 42 on the Championship Index in December, but they slipped away to finish only fourth and a make-up of just 20.
Man City made hard work of winning the league and went as low as 36 on the Index in November having won just one of six away games. Those who had sold them in the mid-40s back at the start of the season will have wished they had cashed out for a profit then.
Liverpool were bought at 12 by some bettors and were heavy favourites at one point to scoop the title. Those traders could have cashed out at well above the eventual 40 they made up for finishing second.
The 60 Relegation Index will be an intriguing market. It’s always interesting trying to work out which of the promoted sides will have enough to stave off the dreaded drop, while there’s generally a side that outperformed last season, who will struggle to repeat that level this time around.
26 | www.financial-spread-betting.com | August 2014
Sporting Index
Each team is given a spread on the number of points they are expected to pick up over the course of the season. The quotes move up and down depending on results and it’s one of the most popular spread betting markets. Those who opted to buy Liverpool’s season points total at 65 last year enjoyed a sizeable profit when the Reds accumulated 84. Southampton’s could be bought at 45.5 and they made up 56. Similarly, Man United’s points were pitched at 78-79.5, but an underwhelming effort saw them pick up just 64. Of the promoted teams, it’s a little simplistic to say runaway Championship winners Leicester City look best-equipped to stay in the top-flight, but I’d be tempted to buy their total points. The Foxes already look better than many of the Premier League teams that struggled at the back-end of the season – West Brom, Hull and Aston Villa, for example.
“iT’s always inTeresTing Trying To work ouT which of The promoTed sides will have enough To sTave off The dreaded drop, while There’s generally a side ThaT ouTperformed lasT season, who will sTruggle To repeaT ThaT level This Time around.”
If they can confirm their supremacy over Queens Park Rangers and Burnley then Leicester’s first season back in the big time since 2004 could be a fruitful one. There’s a great betting angle with the team too. A horrible fixture list which means they play Everton, Chelsea, Arsenal and Manchester United in their opening five games, means the spread on their total points and their position on the Relegation Index is likely to move down and up, providing a good value sell or buy if you expect them to bounce back. With no Luis Suarez this year, the Golden Boot Index looks an open affair. The likes of Robin van Persie and Aguero will be popular but both are injury-prone. Daniel Sturridge has to adapt to life without his partner-in-crime Suarez at Liverpool and it’s probably better to concentrate on someone less fancied at a lower quote.
Alexis Sanchez hit 19 goals in La Liga last term for Barcelona and finished his spell at the club with nearly a goal every two games. That’s despite not always being a regular starter and rarely playing as an out-and-out striker. The Chilean impressed at the World Cup and will surely be one of the first names on the team sheet at Arsenal. The 25-year-old is worth keeping an eye out for on the Golden Boot Index at what should be an attractive buy price. Remember, with sports spread betting, losses may exceed your initial deposit or credit limit.
August 2014
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THREE MID CAP STOCKS FOR H2 2014 By RICHARD GILL OF T1PS.COM
30 | www.financial-spread-betting.com | August 2014
Three mid cap picks for H2 2014
Small caps may be where the serious short-term dough can be made, but as ever in the financial markets, increased reward only comes with increased risk. However, traders who have a lower risk profile but are still looking for decent gains could do well in the second half of the year by looking at a number of London listed mid-cap shares – by mid-cap I mean those in the FTSE 250 index. Interestingly, the FTSE 250 index itself has gained 184% since its nadir in November 2008. This compares to only a 94.2% rise in the supposedly “higher growth” AIM All Share. What’s more, some mid-caps have delivered gains that put many small caps to shame, including rises of over 1,000% from Howden Joinery, Taylor Wimpey and Rightmove over the past few years.
The market obviously looks more expensive now following the economic recovery. In fact the FTSE 250 currently trades on an earnings multiple of 18.25 times, compared to 13.96 for the FTSE 100 (Source: FTSE). However, not only do many of the mid-caps still offer decent growth prospects, as well as income, but I believe that there are a number of reasons on the macro-economic front why mid-caps in general could come good over the rest of the year.
FTSE 250 ten year chart
August 2014
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Three reasons to look at investing in FTSE 250 companies - Since reaching an all time high of 16,726 at the end of February, the overall index has lost circa 6.6%. This compares to just a 0.3% fall in the FTSE 100. In fact, almost two thirds of FTSE 250 constituents have fallen in value since the index reached its peak, many having been seemingly sold off indiscriminately. - Compared to blue chips, the mid-caps have a lower exposure to international markets and thus a lower exposure to negative forex movements. The strength of sterling over the past year has resulted in a number of profit warnings and other disappointing statements from several FTSE 100 companies over the past few months as the translation of overseas income affects the profit and loss account. It is estimated that FTSE 100 firms earn around 80% of their revenues from overseas, while the mid-caps only generate around half of their income from outside of the UK. Into the second half of the year, considering the fact that an early interest rate is looking ever more likely in the UK (giving a further boost to sterling), many FTSE 250 companies look well placed to avoid the foreign exchange problems of their blue-chip rivals.
32 | www.financial-spread-betting.com | August 2014
- With the UK economy firmly in recovery mode, constituents of the UK-centric FTSE 250 index have good growth opportunities. Recent data from the Office for National Statistics showed UK GDP up by 0.8% in the second quarter, with forecasts for the full year being around 3.2% - the fastest growth rate of any major Western economy. This bodes well for many UK-focused mid-caps including JD Wetherspoons, Domino’s Pizza, Big Yellow Group, Home Retail Group and others.
“almost two thirds of FTSE 250 constituents have fallen in value since the index reached its peak, many having been seemingly sold off indiscriminately.”
Three mid cap picks for H2 2014
Here are my three mid-cap trading ideas for H2 2014 GROWTH Notably, cycling continues to power ahead, showing like-for-like revenue growth of 21.3% in the period, customers being encouraged by favourable weather conditions and increased interest in the Tour de France as it came to England.
Automotive, cycling and leisure products business Halfords (HFD) has been a remarkable recovery stock over the past two years, the shares rising by over 150% following the implementation of a turnaround strategy by CEO Matt Davies. Previously notorious for its shaky service, under-investment and having experienced falling sales in ten out of 12 quarters, the firm hit the bottom in 2013, posting pre-tax profits down by 25% for the financial year to March and cutting the previously generous dividend by 22%. However, signs of recovery had been seen, not least after a strong summer for cycling sales in 2012 on the back of British successes in the Tour de France and London Olympics. Following on from this momentum the company hired Matt Davies as its new CEO in October 2012. Davies was previously the Chief Executive of Pets At Home, for eight years, growing the business from 140 to over 300 stores. He quickly implemented a three year turnaround plan at Halfords which focussed on improving service, staff training, store refurbishments, infrastructure investment and improving online capabilities. The plan, named Getting Into Gear, set aside £100 million to invest in the retail business over three years, with Davies setting a target of £1 billion in group sales by the 2016 financial year.
The numbers were actually slightly ahead of market expectations and provided further evidence that Davies’s strategy is working well. Other recent developments include the acquisition of Boardman Bikes, a firm founded by cycling champion Chris Boardman, which sells the Boardman Performance Series exclusively in the UK and ROI; and the launch of Car Parts Direct, an express car parts delivery service.
“cycling conTinues To power ahead, showing like-for-like revenue growTh of 21.3% in The period, cusTomers being encouraged by favourable weaTher condiTions and increased inTeresT in The Tour de france as iT came To england.”
Halfords is divided into the two business units of Retail and Autocentres. Retail makes up around 85% of overall group sales and earns revenues from selling cycling equipment & accessories, car maintenance, car enhancement and travel equipment. The Autocentres business, as the name suggests, provides car servicing and repairs. A recent update confirmed that trading was on track in the 13 weeks to 27th June, with overall group sales up by 7.9%, driven by 9.4% growth in the Autocentres division and 7.7% growth in the Retail division.
August 2014
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Valuation Overall, I see Halfords as a solid business with growth potential. Cashflow from operations has been consistently strong, at almost 54% gross margins are high for a retailer and there looks to be plenty of potential for further earnings upgrades, especially now that the UK economy is growing steadily. The turnaround plan is performing well, recent updates have shown good momentum across the business and the £1 billion a year sales target for 2016 looks highly achievable. One caveat is the debt position of £99.6 million as at 28th March, although net finance charges of £5 million were more than comfortably covered by operating profits of £77.8 million in the last financial year.
As I write Halfords’ shares trade at 483p, just off recent four year highs of 511.5p, capitalising the firm at £940 million. With the shares trading on 14 times consensus forecasts for 2016 and providing a yield of 3.7% I believe they should do well over the course of the second half and beyond. I note that broker N+1 Singer’s 600p target price implies 24% potential upside. Buy.
HALFORDS CHART
34 | www.financial-spread-betting.com | August 2014
Three mid cap picks for H2 2014
RECOVERY So the key for Xaar is how it will go about re-injecting some growth into its performance.
Shares in Xaar (XAR), “the world-leading independent supplier of industrial inkjet printerheads”, plunged in June after the company lowered its guidance for sales and profits for 2014. Sales to the ceramic tile market are now expected to fall this year, reflecting price reductions in response to competitive pressures, although volumes and market share are said to remain in line with expectations.
It’s therefore good to know that in fact Xaar has more new products in development than at any time in its history. For example, the Xaar 1002, a next generation printhead launched in March, is performing well and is quickly being adopted by OEMs.
Interestingly, while the shares fell by around a third (and have more than halved in the year to date), brokers only put through relatively modest earnings reductions. The company has since confirmed that trading has been in line since the warning, with full year revenues expected at £130 million. Could a buying opportunity be opening up here?
Gone too Xaar? To be frank, the rating of the shares prior to the crash was far too high for a company which constantly has to strive to stay one step ahead of the competition. Trading at Xaar has followed a regular pattern whereby the firm introduces a new technology and makes lots of profits, competitors eventually copy it, margins get eroded, a new technology is introduced, ad infinitum… A rating of c.25 times was certainly looking toppy against this backdrop. But the shares have taken a beating and are now trading on around 14 times consensus forecasts for 2014, falling to 13 times for 2015. For a market leader, this could be worthy of further consideration, especially given that net cash of £48.1 million as at 30th June covers 11% of the market cap.
New products… 2013 saw Xaar’s sales soar as it penetrated the Chinese ceramic printing market. However, although sales volumes to the ceramic tile market have stabilised at c.80k units per annum, average pricing is now expected to fall c.10% in 2014 due to price pressures from competitors.
In terms of the launch pipeline, the Xaar 501 for the graphics and packaging markets is currently undergoing trials and is on schedule for commercial sales later this year. Project Thumper, a printhead which delivers significantly larger drop sizes for application of glaze to ceramic tiles and for other industrial coatings, is also in trials, with commercial revenues expected to begin in 2015. Given that investment in R&D doubled to £16.4 million (12% of revenue) in 2013 with R&D headcount increasing by 64% year on year, Xaar looks well placed to continue to churn out new technology and get back on the growth track. Speculative buy.
August 2014
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“For a market leader, this could be worthy of further consideration, especially given that net cash of £48.1 million as at 30th June covers 11% of the market cap.”
XAAR CHART
36 | www.financial-spread-betting.com | August 2014
Three mid cap picks for H2 2014
SHORT But the overall supermarket sector is currently in the midst of a price war, with the focus being on the lower end of the market. Morrison’s announced in March that it would spend £1 billion over three years on lower prices, ASDA will spend a similar amount over five years, Sainsbury’s recently announced a tie up with budget retailer Netto and troubled Tesco announced “significant price cuts on the lines that matter most” in a recent trading statement.
The latest results from online grocer Ocado (OCDO) bring to mind a recent blog article http://www. spreadbetmagazine.com/blog/an-abject-lessionin-the-sheer-useleness-of-analysts.html from SBM founder Richard Jennings on the sheer uselessness of “anal”ysts. Analyst Clive Black of Shore Capital has been one of Ocado’s harshest critics ever since its IPO, from memory slapping a “sell” recommendation on the shares after every single update. Investors who have followed his advice will not be pleased.
The plain economic reality is that Ocado will have to match these price cuts if it wants to compete in an increasingly fickle market. While the company has a more affluent customer base than the big four supermarkets, it selling more higher value goods, this “race to the bottom” will obviously not be good for margins or operational gearing. 2. One of the clear catalysts for a further fall in Ocado shares comes from the fact that another fundraising looks inevitable – and perhaps imminent. This comes as the firm plans to build and open a third customer fulfilment centre following its tie up with Morrison’s. Even more centres may be opened to back the firm’s international growth plans.
Despite a very volatile ride over the years Ocado shares are currently up by 90% on the IPO price of 180p. Even worse, short sellers of the shares who traded at the nadir of around 53p at the end of 2011 subsequently saw a rise to a peak of almost 620p by February 2014. The rise came from the end of 2012 and through 2013 after the firm announced a tie up with Morrison’s, the appointment of retail magnate Sir Stuart Rose as Chairman and a £35.8 million fundraising. The interesting thing is that while the markets have shown considerable faith in the perennial loss maker, Black’s criticism of Ocado’s valuation over the years has been entirely with merit. The shares are down by 45% since this year’s peak but numerous factors continue to support the bear case. Here are three of them. 1. If Ocado ever comes good it will be after enjoying the benefits of operational gearing. To give it some credit (but after spending hundreds of millions over the years) the company has built up decent infrastructure and plenty of capacity for further growth.
“The shares are down by 45% since This year’s peak buT numerous facTors conTinue To supporT The bear case.”
August 2014
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“There are numerous ways to demonstrate the over-valuation of the firm but I think this one sums up the case perfectly – the shares trade on 80 times consensus forecasts for the year to November 2015.” So with the last centre costing around £200 million Ocado should be looking to raise around half of that figure, with Morrison’s stumping up the rest. More money could be raised for the additional centres. We can imagine that Ocado’s brokers at Goldman Sachs must be looking to take advantage of what is still a high share price (despite the recent falls) to raise the money before it potentially falls back below the 100p level again. The fund raising may come sooner than expected and will more than likely be at a decent discount to the prevailing price.
3. Finally, and perhaps crucially, despite all the above factors the company continues to trade at a huge price based on traditional valuation metrics and also at a substantial premium to, what I think, are better placed and better quality peers. There are numerous ways to demonstrate the over-valuation of the firm but I think this one sums up the case perfectly – the shares trade on 80 times consensus forecasts for the year to November 2015. Ocado is a Sell.
OCADO CHART
38 | www.financial-spread-betting.com | August 2014
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Alpesh on the markets
ALPESH ON THE MARKETS
Will H2 2014 be a winner? Pretending to be crazy is probably for the best Into the second half of the year and the most striking image for me is a graph (overleaf) I saw showing just how many US companies continue to beat earnings expectations. Ever since my days of studying economics at university I have known that expectations (and beating or missing them) are what move the markets both in theory and reality.
40 | www.financial-spread-betting.com | August 2014
Alpesh on the markets
I see no reason for those expectations not to keep getting beaten. This is because we are, believe it or not, lacking the confidence to raise expectations in the first place, and that is why markets keep rising. We get surprising earnings jolts and then slip back into our “couldn’t happen again” mode. A perverse concept that may be, but so are the markets.
EARNINGS EXPECTATIONS CHART
Source: bespokeinvest.com
While major indices keep going up, investors look to have forgotten the fundamental weaknesses in the US economy. Fed Chair Janet Yellen and the rest of the Free Open Market Committee are keeping their stimulus efforts intact, citing weaker than expected job and house market data last year. The US dollar getting hammered is soon forgotten too, as now it is a safe haven again. Politics has overtaken economics. But I don’t think that will last long. How soon we have forgotten the Federal Reserve’s decision not to scale back its asset purchases program last year and the fundamental reasons for a weak dollar. The Fed was providing stimulus to the US economy by purchasing $85 billion in assets per month to provide liquidity in the domestic market. But all that is now seemingly at the back of investors’ minds.
And we have forgotten, as we hit all time highs, the hours of debate and discussion between Democrats and Republicans which didn’t manage to find a solution to the debt ceiling issue. Such an incident however is far from usual, as the last time that such a shutdown in government services occurred was 17 years ago. What now of our worries for jobs and US growth? Analysts expressed their fears that a shutdown in critical sectors of the US government will take its toll on annual GDP. They predict that even a couple of weeks of stalemate could bring down annual production by as much as 1-4%. Can it happen this year – why not? How soon we forget.
August 2014
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Alpesh on the markets
So what do you do when you feel like you’re in a mental asylum and everyone should be crazy but they are behaving quite sensibly and not panicking? Do you trade for the inevitable panic, or do you go along and behave calmly too? Personally, I like to keep a very close eye on everyone and not to take big bets on people eventually seeing things my way. I’d rather work on the basis of how the overall market continues seeing things. So for now I am betting on higher highs in global equities.
Europe is stumbling between weak economic data and positive political developments. What wins? Again with Europe, what happened to the PIIGS – remember them? On the European front the signals that investors are receiving are rather mixed. Economic conditions in the region seem to improve but at a rather slow pace and definitely not enough to spur a rally. The single currency has gained substantial ground against the US dollar but this should be more attributed to the obvious, across the board dollar weakness. Yet all is well. We can pay our debts so we ignore everything else.
British economy blooming to pre-recession levels. What happened to our national gloom? On the other hand, here in the UK there is a totally different story as the economy is beating expectations again and again.
The economic climate in the British economy is improving substantially and the metrics show that the GDP figures seen before the last recession have now been beaten. These developments are followed by comments from UK policymakers mentioning that there is no need for another round of QE since the improvements are becoming increasingly visible. Bank of England Governor Mark Carney was pretty clear when he stated that the need for more easing no longer exists and he was joined in this mentality by several other policymakers as well, some of them known for their pessimistic comments in the past. I feel that the UK economy is rising strongly and leading indicators point to a continued recovery and a positive investing climate for domestic and external funds. So bullish all around. Austerity is forgotten and the worry is about booms. Crazy given the underlying threats which are still lurking! But when in a mental asylum, pretending to be crazy is probably for the best. Alpesh B Patel Alpesh is a hedge fund manager who set up his asset management company in 2004. His Sharescope Special Edition has outperformed every UK company’s fund manager over the past decade, as well as Warren Buffett. He has written over 200 columns for the Financial Times and presented his own investment show on Bloomberg TV for three years. He is a former Visiting Fellow in Business & Industry at Oxford University and the author of 18 books on investing. Find out more at www.investingbetter.com
42 | www.financial-spread-betting.com | August 2014
August 2014
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Recent Fed Policy and its inevitable road to deflation or hyperinflation
Recent Fed Policy and its inevitable road to deflation or hyperinflation By Richard Jennings CFA, Titan Investment Partners, & Filipe R. Costa
44 | www.financial-spread-betting.com | August 2014
Recent Fed Policy and its inevitable road to deflation or hyperinflation
As you’ve probably noticed, our articles in recent months often use words like crash, meltdown, bear, downturn, and many other synonyms depicting doom and gloom. This is not because we are clinically depressed (I don’t think so anyway!) but because we are sceptical, to say the least, when we see everybody buying equities at increasingly higher prices without a corresponding improvement in the underlying companies’ bottom lines and without a real improvement in economic conditions. If future prospects aren’t really improving, certainly to the degree that would support higher stock valuations, then logically, higher equity prices by default mean that investors are thus willing to accept an inferior compensation for the risk that they bear. A rational theory therefore would conclude that the economy is less volatile and that systematic risk has diminished in enabling investors to accept lower expected returns. Some academic researchers go even further by arguing that after a very good period of market returns (bull market), investors develop a very high tolerance for risk, and therefore accept lower returns thereafter.
“you could say ThaT The Tolerance for risk may change wiTh The overall wealTh level, buT invesTor surveys show ThaT invesTors don’T expecT lower reTurns afTer a bull markeT. in facT, They expecT precisely The opposiTe To occur – ThaT is for The above abnormal reTurns To conTinue.” Both theories are very odd to us and are very unlikely to explain adequately what really happens with regards to the markets dynamic at the latter stages of a bull market. you could say that the tolerance for risk may change with the overall wealth level, but investor surveys show that investors don’t expect lower returns after a bull market.
In fact, they expect precisely the opposite to occur – that is for the above abnormal returns to continue. That is most probably the reason why they keep their money invested and why new money enters the market after prices have inflated. We like to do the opposite here at Titan.
What these data surveys really show is that investors both under and overreact to news. That is after a period of good news, they tend to overreact and identify continuation patterns which don’t actually exist. If the earnings for Facebook rise at a pace of 100% for five consecutive quarters for example, investors tend to put too much weight on the possibility of earnings continuing to grow at such a pace. That is why we observe the momentum effect in stocks and, at the extreme, the rise of bubbles with everybody buying Internet stocks when prices are inflated, or houses after prices have been rising rapidly for five years. An asset bubble forms and then, just as night follows days, it ends with a crash. We are hard wired to act like lemmings and follow each other off a cliff and those that can stand apart from the crowd truly are rare.
August 2014
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Recent Fed Policy and its inevitable road to deflation or hyperinflation
“A decrease in interest rates, per investment theory, automatically generates an increase in equity valuations. If the price of a company is seen as the discounted present value of its future dividends (or cash flows to some extent), then the lower the discount rate, the higher the price for the company’s shares.” The reasons why erroneous risk perceptions form are varied and difficult to identify, but a sure thing is that monetary policy is at the centre of it, particularly so in recent years. When interest rates are very low for a prolonged period, a central bank is in effect actively inducing a change in risk perceptions, and more so, one which is more or less artificial given that the low interest rate isn’t the result of market forces. This is precisely the situation we see at present given the zero interest rate policies of the European, U.S & Japanese central banks – an unprecedented co-ordination of liquidity injections, and injections that have gone on for nearly six years now.
A decrease in interest rates, per investment theory, automatically generates an increase in equity valuations. If the price of a company is seen as the discounted present value of its future dividends (or cash flows to some extent), then the lower the discount rate, the higher the price for the company’s shares. We can thus see how the super aggressive monetary policy implemented in the US has generated a massive rise in stock prices. Just look at the chart below depicting performance for the three main US indices since they bottomed out in March 2009.
MKT PERFORMANCE CHART
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Recent Fed Policy and its inevitable road to deflation or hyperinflation
Equities have not only recovered their losses in full that were seen during the crisis but they have managed to power on to new record highs. The S&P 500, the Dow 30, and the Nasdaq 100 indices are up 192%, 160%, and 274% respectively - a stunning performance set. The Federal Reserve has been actively distorting risk perceptions using unconventional monetary policy tools like quantitative easing. When the policy is reversed, in our opinion, a blood bath will occur, firstly because of the impact a higher interest rate has on valuations and, secondly, because the upwards move has been so excessive – like an elastic band, the more one stretches it one way the harder the snap back is the other…
When will the Fed allow interest rates to revert back towards “normal” levels? If you take a look at the chart below which depicts the effective funds rate in the U.S for the last 50+ years, you will quickly identify a clear pattern. Since the 1980s, interest rates have been on an ever decreasing trend, from a level near 20% to a level now hovering just over 0%. The only way from here is up but not before a bout of money printing has been played around with.
FED FUNDS CHART
August 2014
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Recent Fed Policy and its inevitable road to deflation or hyperinflation
The main objective of Fed policy over the last 30 years has been to sustain the downtrend in interest rates, with the primary purpose of managing one of the biggest problems ever faced by them - the massive rise in debt – both domestic sovereign debt and the consumer. This is an intergenerational problem and something that should concern the whole world. Earned income and disposable income have been rising at a pace below consumer needs for many years now, in particular in the US. This is not just the elephant in the room, it is a veritable herd of them and there are only two ultimate final outcomes we believe – a massive deflationary crunch or hyperinflation. In a certain way, the Austrian School of Economics is right about crises and crashes. They believe that economic imbalances should be addressed early on in the cycle in order to avoid a real and prolonged economic problem further down the line. They are the ultimate advocators of tempered economic intervention and I suppose the closest parallel to their suggested policies is the Swiss model. Essentially, they are saying it is better to face a small recession now than a big depression in the future. Faced with rising living costs, the US consumer would have had to accept lower living standards for some time if policymakers followed the Austrians’ suggested route.
The growth in debt markets and easy access to credit has allowed consumers to maintain their living standards beyond that which they can ordinarily support. If there was no access to excessive credit, then the same consumer would have had to change their spending habits and eventually look for alternative ways of increasing living standards. So, with credit readily available and coming in many flavours, the day of reckoning gets delayed. At some point though, the piper must be paid. To avoid a decline in economic activity in an economy that depends 90% on consumer spending, the Fed has thus kept expanding the monetary base. A rock and a hard place underplays the situation somewhat!
LIABILITIES CHART
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Recent Fed Policy and its inevitable road to deflation or hyperinflation
Here’s a good example of how active and sensible economic policy can work: let’s take two very simple situations where monthly incomes differ but where monthly expenses are unchanged and set at £1,500. In situation A, you earn £2,000 on odd months and £1,000 on even months. The idea is that your income isn’t stable over time for some reason. Even though you aren’t able to cover expenses with the income you earn in even months, annual income is exactly equal to annual expenses. So, if you save £500 from odd months, you can then pay in full for expenses in even months. In this case there’s some kind of borrowing from one month to the other but it is nevertheless a sustainable situation. It makes sense to borrow to maintain living standards instead of cutting down on your expenses. Alternatively, consider situation B, where you earn £1,000 every month. Your annual expenses are higher than annual income, so to maintain living standards you will have to borrow £500 per month and end the year with debt of £6,000 plus, let’s say £600 in interest. If the same happens next year, you will add another £6,600 to the debt pile plus the interest on the £6,600 related to the first year, and so on. In the end, if your disposable income doesn’t change during the next few years, the situation would be unsustainable. During the credit boom before the collapse, banks accumulated a huge amount of “bad debts”. And true to form in recent years, the Fed rode to the rescue once again. To facilitate the disjointed and stretched credit mechanism the Fed cut, cut and cut again. By doing this, the average American has been allowed to maintain his living standards (to a degree), but at the cost of future generations and expropriations from the outside world.
While this bubble continues to grow, what was an optional policy has now became a non-optional imperative to simply maintain the pretence of the pre-eminence of the US economy. Quite simply, the US is issuing checks that will be very unlikely to be ultimately honoured. On a simple and accepted accounting measure, the US economy is insolvent (I suppose you could say the same about most other major economies, the primary issue is the degree of insolvency). Printing money while keeping interest rates low is thus the only game in town for the central bank. In situation B depicted above, if you also were allowed to print money, then you could just print £500 every month. Problem solved! But now imagine that all other households could do the same. Patently everybody would print money to pay for their bills instead of thinking of alternative ways to generate income and/or cut current expenses. The massive rise in the supply of money would push its “price” down, which is the same as saying the cost of purchasing the same goods would increase. At that point we would have inflation on a huge scale. Even though this is a major simplification, it is not much different from the situation that is occurring now. In the end we are condemned to hyperinflation or, in the alternate, deflation on a massive scale as the debt burden finally gets worked off. Going on the recent actions of the Fed our money’s on the former. Make sure you are positioned appropriately. To learn more about our unique tax free funds and how we are preparing for a major market shuffling of cards in recent months click the banner below or email us at info@titanip.co.uk
August 2014
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Zak Mir Interviews
ZAK MIR INTERVIEWS
CAMERON MALIK
This month Zak interviews entrepreneur and trader Cameron Malik from Magnetic Trading Zak: Welcome to Spreadbet Magazine Cameron. Given the way that 90% of short-term traders lose money, is it the case that anyone who thinks they can win in the markets is either arrogant or foolhardy? Cameron: It is fair to say that 90% of all short-term traders lose money in the markets. Interestingly, the 90% statistic does not just apply to trading. If you consider any new business it is a fact that 80% of them will fail in the first three years. In the following two years 80% of the businesses left will fail. So the odds of success in general business are much the same across the board. Only 4% of new businesses survive longer than five years. So the question should be what makes the 4-5% successful? Arrogance and being foolhardy is not the reason the top 5 – 10% make it in business or trading. Like anything in life that is worthwhile, it takes time, hard work, passion and perseverance to “make it”. My best advice is to learn and be mentored by people who already have the success that you desire. Zak: Is it the case that a person’s background prior to becoming a trader can very often be as important as the method that they use? How much has your back story influenced what you do now and how successful you have been?
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Cameron: your background experience is always going to be a factor to whatever you approach. My past businesses helped me tremendously in adapting to the markets. At the end of the day trading is a business like any other and being able to manage risk and to spot opportunities is critical.
“aT The end of The day Trading is a business like any oTher and being able To manage risk and To spoT opporTuniTies is criTical.” If I’d had no business experience prior to trading I think it would have taken me longer to master. I see that with a number of the traders I mentor, those with a business and systems background tend to excel at a faster rate then those coming from other professions. Some are more suited to trading than others but I believe anyone can trade if they are willing to put in the time and effort.
Cameron Malik
Cameron Malik profile Cameron Malik has a 15 year background in building and running multi-million pound businesses. He had great success in the business world but found he was never fully satisfied. He searched long and hard to find the ideal business for him that didn’t have the incumbents of traditional business (offices, stock, warehouses etc) and would allow him the freedom he was looking for. After years of searching, Cameron found what he was looking for in trading the markets and these days is a “Lifestyle” trader, specialising in short-term trading of the US Dow Jones Index. 90% of Cameron’s trades are completed within the first hour of trading. Cameron is also the co-founder of Excelsior Trading, running a market report and trading service which returned 54% in the last year. Since the launch of Cameron’s Pro Trader Mentoring program, a live trading room and educational service, in October 2013 he returned 124% to the end of March 2014. One of Cameron’s largest trades in the room pulled in 28% in less than 30 minutes. To learn more about the Magnetic Trading service and to get the 1st month half price with a 30 days money back guarantee CLICK HERE http://magnetictrading.com/the-magnetic-trading-room-service/
August 2014
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Zak Mir Interviews
Zak: How did you finally settle upon the way you trade given that there are hundreds of methods, software programs and courses out there? Isn’t not being able to see the wood for the trees the biggest barrier that novice traders face? Cameron: I was lucky to enough to realise the best and quickest way to succeed in trading is to learn from other successful traders. To date I continue to surround myself with successful traders such as my trading partner Mark Austin, aka ‘’Mr. FTSE’’. As you correctly say there are hundreds of courses and programmes out there but in reality most of them are run by marketers. New traders should try multiple styles of trading from reputable traders to find out what suits their personality and lifestyle. Personally, I prefer short-term trading as I don’t like holding positions over night. I also don’t like to screen watch all day, which means my methodology requires I trade at a set time each day and that the trades are completed quickly.
Cameron and Mark “Mr. FTSE “ Austin
Cameron: My experience is that the simpler your trading methodology is, the more success you are likely to have. In terms of education and qualifications, some of the most successful people in the world dropped out of school without even a GCSE to their name.
“My experience is that the simpler your trading methodology is, the more success you are likely to have.” Zak: Cynics suggest that those who cannot trade offer trading services. Given that you trade as well as run a trading service, do you find doing both helps or hinders your performance in the market? Isn’t running a service sometimes a rod for your own back? Cameron: I agree that many non-traders run services but very few offer exact trade set ups ahead of time with the a precise entry, stop and target. This is something the magnetic DOW service offers, which is very rare in this industry. Is running the service a rod for my own back? Not really, as pushing the trade out takes minimal time and it is all set and forget. I try to keep the service as simple as possible with no alternate trades, so cherry picking is not an issue.
Zak: These days the financial markets are increasingly top heavy with regulations, exams, red tape and of course even more hubris than ever. Can someone without the rocket science qualifications, an Einstein sized brain and mentality of a decathlete even hope to succeed? Would you acknowledge that in this day and age the concept of the gifted amateur trading winning from home on a consistent basis is a myth?
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Zak: What is your definition of a successful trading service? Would it not be better for most people to learn the methodology from yourself in the form of a course and then trade on their own? Cameron: A successful trading service is one which delivers consistent profits and which can be matched against the trader issuing the signal. As mentioned before, all my trades are given ahead of time and are structured in a simple format which anyone can follow. This is important as it is very difficult to follow a trader.
Cameron Malik
In your opinion is there a relationship between success and timeframes? Would an alternative longer timeframe approach be attractive for those who do not have time during the middle of the afternoon to place trades?
If people have the time and are willing to learn how to trade then the methodology is offered. However, there are many people out there who just don’t have the time but want the benefits that trading can offer. For those who do have more time then I also work side by side a select number of clients in a live trading room. One which has created a number of successful traders.
“Success is not really time related, its more about finding an edge which works in the market. The edge I have is linked to market function and market psychology, concepts which tend to confirm themselves in a short period of time.”
Cameron: Well performance is obviously key but the ability to actually follow and match the results is my USP. I have met many talented traders whose style is just impossible to follow.
Cameron: Success is not really time related, its more about finding an edge which works in the market. The edge I have is linked to market function and market psychology, concepts which tend to confirm themselves in a short period of time. I look to take the cream off the market and not look for the big cheese, which is often far more difficult and risky. This may sound strange but I don’t actually like being in the market and the quicker the trade is completed the better. Conversely, the longer my trades take, the risk increases for those who cannot trade in the afternoon. In that instance a longer term strategy is not necessarily suitable.
Zak: We are led to believe that the longer the timeframe, the greater the chances of success. Yet very often you will have a trade idea on the Dow which may be all over in 15 minutes and be a winner.
Zak: You charge £47 a month and offer a money back guarantee. Is this not a somewhat defensive stance given the robust track record you already have, and given the way that there are so few consistent competitors out there?
Zak: Apart from being interviewed in Spreadbet Magazine how can someone differentiate the merits of your service from the competition? Given how many “gurus” there are out there what would you describe as your USP? Is it all about performance?
August 2014
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Zak Mir Interviews
“80% of trading is in the mind so the first thing I do is get new traders to start on a mechanical system where the decisions are made for them.� Cameron: The money back guarantee is there for people who don’t know me. While the service has a great track record I think its more than fair to allow people to see if the service is right for them at no risk. Zak: Much in terms of what makes a winning trader is to do with mindset and discipline, perhaps even more than the trading method used. Do you offer mentoring, and how do you address the massive issue of making sure traders have the correct psychology? Are there people who you have had to tell directly that they should give up on account of not having the correct disposition?
Only when traders have become consistent in their profits will I start to introduce more discretionary trades which require more discipline but have a better overall return. Zak: For those who can trade consistently there is always the opportunity of setting up a fund, something which could of course accelerate the path to riches. Is this something you have considered? Cameron: I am currently considering doing this with some of my trading partners. Watch this space.
Cameron: Yes, 80% of trading is in the mind so the first thing I do is get new traders to start on a mechanical system where the decisions are made for them. This puts the pressure on the system rather than themselves.
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August 2014
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Social media stocks and dotcom 2.0
Social media stocks and dotcom 2.0 - a new approach to valuation By Richard Jennings CFA, Titan Investment Partners, & Filipe R. Costa
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A new approach to valuation
When it comes to new businesses, particularly in the technology sector, it seems that analysts and investors on the whole don’t have a clue as to what the right valuation is to apply to them. Finger in the air seems to be as good a mechanism as any! Witness the flotation of Twitter last year… Initially, the social media mass market email messaging system (which is all it actually really is but with a few “targeted” ads bolted on now) was supposedly worth $17 a share. Then this was raised to $26 by the investment banks tasked with selling the company to the public and within just a few months the stock was changing hands for over $70 a share. How can this be? Was there a material change in the business’s fortunes in just three months or is this yet another example of how “the market” is largely a clueless collective and that for those of more measured and experienced minds that this insanity can be taken advantage of?
When it comes to “technology” stocks, for some unfathomable reason investors tend to become too enthusiastic and overly confident about the prospects of a particular offering. They are also seemingly unable to form conservative judgements that lead to sound investment decisions. Just look at the last so called “dotcom” bubble in the run up to the dawn of the new millennium in 1999, for example. Nascent internet businesses at the time were thought to have no limits to their potential growth and so their upside stock price potential was also seen to be limitless. We all know how the story ended…
TWITTER CHART
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Social media stocks and dotcom 2.0
“During the 2000s we witnessed a bubble in the US housing market and the derivative instruments that were spun off from this, then we saw the equity bubble going into early 2008, the precious metals bubble with gold and silver moving far from their long term averages into 2012 and now we have a renewed equity bubble and bond bubble.” It is of course the disconnect between reality, and people’s perceptions of reality, that leads to bubbles and the inevitable subsequent crashes. At some point it dawns on investors that a lot of potential is not the same as unlimited potential. Typically, an exogenous event develops and the upside cycle in equities breaks. It may be due to some dismal quarterly earnings report by a bellwether stock or a negative economic report. What matters is that there is a collective scratching of heads at valuations being paid. It is as if someone switches on a light. I recall, even now 14 years later, the weeks when the tech market in the States turned tail and the market literally broke overnight in April 2000.
PARADIGM CHART
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No matter what the news that came out for months, it was all bad news. Sentiment is transient and can turn on a hairpin. The point is that it doesn’t actually matter how the sentiment reversal starts. What does matter is that it turns negative and people start selling in droves those very same equities with supposedly uncapped upside potential that were being bought hand over fist just days and weeks before. The higher the initial hype, the more extreme that the crash in prices generally is. It is happened since time immemorial and it will happen again.
A new approach to valuation
With the bursting of the dotcom bubble still fresh in many investors’ minds (show’s how time flies eh?) it is particularly surprising to us to see the very same levels of mania and animal spirits once more assert themselves. During the 2000s we witnessed a bubble in the US housing market and the derivative instruments that were spun off from this, then we saw the equity bubble going into early 2008, the precious metals bubble with gold and silver moving far from their long term averages into 2012 and now we have a renewed equity bubble and bond bubble. Perhaps regulators should be looking at the cause of these seemingly ever more frequent bubbles rather than attempting to deal with their aftermaths when they burst. Our “tuppenth worth” is that the outstanding credit in the global economy seems to never get eaten into results in more and more price dislocations. We need a solid generational deflationary crunch to reset the system! The 2007-2009 financial crisis was of course one of the worst the world has seen for nearly 90 years, one having to go back to the 1930s and the depression that was suffered in the States for a comparison of global wealth decimation. It was so bad that the US government was forced to bail out a number of financial companies to avoid a total systemic collapse. At the same time, the crisis forced the Fed further down the route of massive market intervention in order to save the banking system and capitalism as we know it. By default however, it proved the salvation of equities through the unprecedented cocktail of the injection of liquidity into the market, cutting interest rates to near zero and engaging in three quantitative easing programmes. Perhaps even more tellingly, some seven years after the beginning of the collapse, central banks around the world still show near zero interest rates, Europe struggles to survive the austerity measures that have been imposed on her peoples which are aimed at controlling government budget deficits (partially built up by an attempt at saving the financial system ironically), and the US has just reported a 2.9% GDP contraction for the last quarter. Meanwhile, Netflix, Facebook and Tesla et al continue their nose bleed valuation ascents. Something somewhere is wrong… What we have relayed here should be evidence enough for us to smell the smoke before the fire starts. That means sticking to conservative value measures instead of engaging in unrealistic newfangled per-user metrics.
“Eyeballs”, “click throughs” etc are just another way of saying “we cannot possibly justify the current price on traditional valuation measures and therefore we have to resort to a new fangled bamboozling measure!” In the end, a business ultimately reverts back to the traditional, proven, conservative fundamentals of cash flow and real earnings. “Eyeballs”, “click throughs” etc. are just another way of saying “we cannot possibly justify the current price on traditional valuation measures and therefore we have to resort to a new fangled bamboozling measure!” What should investors do then with early stage growth business where traditional measures of value are hard to apply? In particular, how do we actually value businesses like Twitter, Facebook, or LinkedIn, all of which derive a large part of their revenues from advertising?
WARREN BUFFET
First of all, taking Warren Buffet’s sage advice that we should only invest in businesses we can understand would be a good starting point! The aforementioned companies are not really selling a product or even a subscription.
August 2014
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Social media stocks and dotcom 2.0
They sell the potential created by their user base, which of course could halve, if not completely disappear, overnight. Remember Hi5 and Myspace? Probably not. And the reason is simple: these businesses disappeared without leaving a trail as people simply pack up and move on to the “next big thing”. They had one major thing in common however with the current internet stocks du jour - their revenues were predominantly derived from advertisers who are desperately seeking clients. They are seduced by the million/billion user-bases these companies purport to offer as if they could reach the whole world with just a click. If, at heart, these businesses are reliant upon ad spending then one could say that the true valuation measure is that of an advertising/media business – something like WPP. Think about it, they are looking to take a finite amount of advertising dollars from “traditional” media businesses and so one should be looking at the value of these traditional media business and add or subtract a premium for the relative perceived “stickiness” or longevity of these contracts. This in turn is a function of the likely staying power of the companies’ underlying products. LinkedIn for example, as a good job search tool, is likely, in our opinion, to remain around longer then say Facebook’s core product and so one can argue for a premium with Linkedin. Twitter’s business frankly has minimal barriers to entry and so a discount should be applied.
“In a little known fact, on-line advertising has in fact been in a secular decline over the past decade. With this decline, advertising on the web has actually decreased. A campaign to deliver one million ad emails would probably cost you just a few cents on the dollar. As very few are really opened by anyone, its real value is probably negligible.” Still, both investors and advertisers must ask the fundamental question - do these people really buy from the ads they see? Do they care about them? Do they even see them?
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From my own personal experience (which of course is a limited but nevertheless valid example), I can’t recall a single ad that I saw online during the past week while surfing the web that made me go out and buy. In fact, I can even say that most of the time when I see those flashing lights urging me to “click through” that I seek to close them down or obfuscate them. Why? My brain has probably developed a filter against banners due to the sheer volume of them. Just think about your own experience. Do you read ad emails? Do you even see them and what they are about? In a little known fact, on-line advertising has in fact been in a secular decline over the past decade. With this decline, advertising on the web has actually decreased. A campaign to deliver one million ad emails would probably cost you just a few cents on the dollar. As very few are really opened by anyone, its real value is probably negligible. With traditional online advertising declining, web based companies were in need of finding an alternative way of generating revenues. Perhaps actually selling products? Creating a real and worthwhile subscription user base? No, that’s too tough! It is much better to create free-based websites that would attract millions of users, precisely because they are free, and then sell a different kind of ad promising a billion-user reach potential. Thus social media advertising was born, and with it the promise of unlimited potential. Just like its predecessors in 1999... Companies like Facebook, Twitter and LinkedIn have an opportunity to make huge profits for the backers of the business, at least until everybody realises how awful this social media project actually is in terms of translating into real clients and profits, which is, sadly for these guys, the final goal of any ad campaign. Social media ads are very simply a new kind of banner. Let’s think of them as banners 2.0. This is a new way of seducing ad buyers agreed, but still the same product which is more or less destined to fail as a way of delivering clients to advertisers. During early July the WSJ http://online.wsj.com/articles/companies-alter-social-media-strategies-1403499658) published an article on a study conducted by Gallup on the impact of social media advertising. The results were telling…
A new approach to valuation
“Gallup says 62% of the more than 18,000 U.S. consumers it polled said social media had no influence on their buying decisions. Another 30% said it had some influence. U.S. companies spent $5.1 billion on social-media advertising in 2013, but Gallup says “consumers are highly adept at tuning out brand-related Facebook and Twitter content.�
These conclusions are clear and unequivocal proof of the limited value social media ads have on buying intentions.
August 2014
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Social media stocks and dotcom 2.0
In another study, Nielsen Holdings NV found that consumers trust ads on TV, print, radio, billboards and movie trailers more than social media ads – a truly shocking finding for the likes of Twitter and Facebook. According to Gallup’s study, brands incorrectly assumed that consumers would welcome them into their social lives and so delivered a hard sell that in fact has turned off many people. In general, people don’t like the intrusion of ads into their lives. And those who don’t care about the intrusion probably disregard the ads nevertheless. Indian Road Cafe is a victim of this hype, as cited in the WSJ article. The restaurant spent $5,000 on Facebook ads and turned its page into a 13,000-fan page. But the company co-owner, Jason Minter, told the WSJ that the final results were disappointing. After all, the restaurant didn’t expand its client reach or grow its revenues – the ultimate acid test with regards to marketing spend, and of course a wasted $5,000 in the process…
“In another study, Nielsen Holdings NV found that consumers trust ads on TV, print, radio, billboards and movie trailers more than social media ads – a truly shocking finding for the likes of Twitter and Facebook.”
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The problem with the Indian Road Cafe is common to the majority of advertisers. They need to realise that a Facebook “fan” is not a company’s client. In fact, he is far from that, as he eventually just hits the “like” button because it was most likely suggested by someone (or by Facebook) and, worse, he did that without even knowing what the company is about. Lemmings, sheep and cliffs spring to mind. Aware of these diminishing returns, established companies are now becoming rather more selective regarding their Facebook and other social media campaigns. This to us amounts to the first stage of a major decline that will occur in social media advertising – just as valuations reach stratospheric peaks. The madness of crowds and all that? When the cost of money starts rising again and when companies realise how ineffective social media is as they did with “banners 1.0”, once more, traditional media campaigns on TV, radio, and print will come to the fore. Of course there are some businesses where there is real worth online – travel, financial media, gambling and porn (!) but for people like Ford, Coke et al, their money is likely to be far more productively spent on traditional avenues. Facebook and others have a limited time to either launch “banners 3.0” or to illustrate that they really are adding value for their B2B (remember that phrase?) customers otherwise they will end just as many others did when the dotcom bubble unfolded in 2000 – as toast and a charred investor landscape. For you and me the lesson is always simple: only invest in what you can understand, and if you can’t find value using traditional metrics, then value most likely doesn’t exist at all.
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www.t1ps.com
THREE SMALL CAP PICKS FOR H2 2014 James Faulkner of share tipping website t1ps.com takes a look at three of his top small cap tips for the second half of the year.
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Three small cap picks for H2 2014
“I am always on the look-out for ‘something new’, by which I mean some kind of new technology, product or innovation being introduced which has the potential to transform a company’s prospects. Cropper may have achieved just that.” James Cropper (CRPR) One of the very few remaining UK quoted paper companies, James Cropper, operates in an industry that has not traditionally rewarded investors well. Bulk paper producers are horribly exposed to fluctuations in the price of pulp (the industry’s key raw material) and that is enough to justify a low rating for such stocks. What’s more, they are capital intensive and operate on paper thin margins (poor pun, I know, but it had to be done). That said, I am always on the look-out for ‘something new’, by which I mean some kind of new technology, product or innovation being introduced which has the potential to transform a company’s prospects. Cropper may have achieved just that.
The plastic is then skimmed off, pulverised and recycled, leaving water and pulp behind. Impurities are filtered out of this mix, leaving high-grade pulp suitable for use in products such as luxury papers and packaging materials. With the company having already signed supply deals with major fast food and coffee outlets, the new plant will enable Cropper to recycle 1 billion coffee cups a year - cups that would otherwise go into landfills or be burned - to produce packaging and shopping bags for luxury brands such as fashion company Fendi. This is potentially something of a coup for the firm, as rather than having to buy pulp from overseas, this plant should enable the firm to develop its own supply, thereby furnishing it with a more stable cost base. The system may also lead to opportunities in parts of the US where packaging products must have a proportion of recycled inputs. The 1 billion cups per annum set to be processed represent c.40% of the UK’s coffee cups. However, given that 500 billion are used globally every year, the long-term potential of this technology could be vast. Rather than patenting the technology, the firm will be keeping it a trade secret. This should help prevent competitors from reverse-engineering the technology from the patent dossier.
Numbers
Cash from coffee? Last year the firm unveiled a new facility to recycle disposable coffee cups as high-quality paper products. Opened by Her Majesty Queen Elizabeth II in Kendal, the £5 million plant utilises “the world’s first” technology that can separate out the polyethylene content of disposable coffee cups (5%) from the paper pulp (95%), which is then recycled into high-quality papers. The process involves softening the cup waste in a warmed solution which separates the plastic coating from the fibre.
Group turnover for the year to 29th March 2014 was £84.5 million, up 7% on the previous year, with UK sales up 6% and export sales up 7%. Across the group, sales into the USA were up 15%, while sales into continental Europe were down 2%. Exports represented 50% of turnover. The group reported a marginally higher trading profit before tax of £2.1 million, but profitability was adversely affected by exchange rate fluctuations, exceptional restructuring expenditure, increased pulp and energy costs and the consequence of increased UK and EU environmental taxes.
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“even if the firm only manages to secure a fraction of the global market there looks to be an interesting opportunity here.” Overall profit before tax was reduced to £1.3 million after a £0.8 million pension adjustment. Net debt increased from £9.3 million to £10.3 million after considerable investment and capex. At the divisional level, the newly formed James Cropper Paper Products (JCPP) segment delivered a c.20% increase in EBIT. JCPP is the amalgamation of the James Cropper Speciality Papers and James Cropper Converting which the group previously reported on separately. Meanwhile, Technical Fibre Products (TFP) saw a 12% reduction in EBIT in FY14 which was largely due to the timing of the start of some contracts and extra investment in its US facility in anticipation of these.
Valuation Clearly, the full year numbers mentioned above demonstrate the volatility of Cropper’s business. While the investment in the recycling plant will reduce the firm’s exposure to pulp prices in the long run, for the time being it retains that exposure; what’s more, it is also exposed to gas prices. The rule of thumb for Cropper’s profits is that a £10 per tonne upward (downward) movement in pulp prices will increase (reduce) the group’s annual profits by £400,000. The rule of thumb with gas prices is that a 10p per therm upward (downward) movement has a negative (positive) impact on annual profits of £720,000.
The pension deficit of £9.3 million is also a concern, although the imminent increase in interest rates should lend a hand in this regard. Following the FY14 results, house broker Westhouse (the only broker covering Cropper at present) reduced its adjusted pre-tax profit forecast for FY15 to £3.8 million (from £4.4 million) to reflect currency movements, but kept its FY16 forecast at £4.9 million. The broker said it believes the group is currently entering “a substantial profit growth phase” and is encouraged by the CEO’s efforts to overhaul the management team in the last 12 months. It upgraded its stance to ‘buy’ from ‘add’ and increased its price target from 450p to 500p on the back of the results. On Westhouse’s earnings forecasts, the rating is c.11.8 times, falling to just 9.1 times for FY16. Without the opportunity in paper cup recycling I’d say that the rating looked pretty full. But even if the firm only manages to secure a fraction of the global market there looks to be an interesting opportunity here. What’s more, there’s also a reasonable (c.2.2% prospective) dividend yield on offer. Should the foretold upturn in profitability come to pass, the metrics look good, with the PEG at 0.4 for FY15 and 0.3 for FY16.
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Three small cap picks for H2 2014
JAMES CROPPER CHART
Clinigen Clinigen supplies drugs for clinical trials, many of which compare an experimental treatment with one already on the market. It also supplies unlicensed medicines into markets where a drug is being withdrawn or where there is no alternative. In addition to this, it also buys drugs from other companies, such as AstraZeneca, which sold it the anti-viral agent Foscavir in 2010. The Clinigen Group was formed in 2010 and comprises two divisions - Services and Products. The group manages the supply of drugs into a total of 53 countries, with particular expertise in the therapeutic areas of leukaemia (and other areas of oncology), haematology, transplantation, anti-infective, pain management, gastrointestinal and hospital and critical care, as well as orphan diseases.
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The investment case Clinigen offers investors exposure to a very attractive and potentially highly lucrative business model. Through its extensive network of relationships with major pharmaceuticals firms, Clinigen’s specialist Services division offers the perfect forum for the firm’s M&A drive to grow its Specialty Pharmaceuticals business, which is looking to replicate the success of peers such as Alliance Pharma but on a global scale. This is not your typical pharmaceuticals company, funnelling money into drug development programmes that may or may not succeed. Clinigen is able to cherry pick tried and tested drugs where it sees an opportunity to exploit its own infrastructure and expertise, thereby making it a lower risk play than many of its peers.
“Since its acquisition from AstraZeneca in 2010, Foscavir has delivered afour-fold growth in sales under Clinigen’s management.” When some pharmaceuticals products approach the end of their life cycle they can become non-core to a firm’s strategy and a drain on resources. Clinigen offers pharmaceutical firms an exit route, either via management through its GAP business (enabling access to patients reliant on the drug even as sales, marketing and direct distribution is terminated by the pharma company), or through the outright acquisition of the drug by Clinigen Products. Although such drugs may no longer fit with a particular pharmaceutical company’s strategy, it does not follow that they are a bad investment for Clinigen. Since its acquisition from AstraZeneca in 2010, Foscavir has delivered a four-fold growth in sales under Clinigen’s management.
Numbers
The Clinigen investment case fits well into the current trends taking place in the pharmaceuticals market. Firstly, under pressure from tightening regulatory requirements and falling returns from R&D, large pharmaceuticals firms are increasingly turning to outsourcing as a means to simplify and streamline their businesses. Clinigen’s expertise lie in helping pharmaceuticals companies navigate these regulatory and logistical hurdles, which become particularly complex when the drugs are unregulated (but required by a critically-ill patient). Meanwhile, the firm’s commercial relationships with pharmaceuticals firms (it currently works with 15 of the top 20 pharmaceutical companies) also bring added benefits in that it is kept alert to any potential acquisitions for its Specialty Pharmaceuticals (SP) arm.
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After a stunning performance post the IPO in early 2013, Clinigen shares fell sharply on the back of the firm’s recent interim results, mainly due to concerns over margins and the visibility of future revenues now that sales of its Foscavir drug are flattening out. However, we believe that the sell-off was overdone. Underlying pre-tax profit climbed by 12% to £10.9 million in the period, on group revenue up 6.5% on a like-for-like basis to £61.8 million. Underlying earnings per share increased at a slower pace (due to the increased number of shares in issue post the 2013 IPO) of 7.8%, to 9.7p, while the interim dividend was increased by 66.6% to 1p per share. The group also remained strongly cash generative at the operating level, to the tune of £8.2 million, which, after deducting capex and dividend payments, led to a £5.5 million increase in cash balances to £16.8 million. The company remains debt free and also has a £20 million borrowing facility available.
Three small cap picks for H2 2014
House broker Numis has noted the potential for over 100% upside to its 5-year forecasts, should Clinigen meet its stated ambition to become the market leader in both Clinical Trial Supply and Global Access Programs through organic growth, and to add a further five to seven specialty pharmaceutical products over the next three to five years.
In this context, the current rating of c.16.7 times 2014 consensus forecast earnings, falling to c.13.5 times for FY15 looks good value, especially when one factors in the rapid earnings growth anticipated over the coming years (PEG of sub 1 in FY14 and FY15). Key risks include further margin erosion, acquisition risks and revenue visibility.
CLINIGEN CHART
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Gable (GAH) Gable is a relative parvenu in the huge European non-life insurance market. Over the years the company has quietly demonstrated itself to be a savvy operator, able to grow market share by selectively introducing products into new territories. In particular it seeks to identify niche areas of underwriting where competition from larger peers should be lower – and thus profitability should be higher. The strength of its model is highlighted by a five-year CAGR (compound annual growth rate) of gross written premium of 50%. Despite this strong growth, we believe the shares to still be undervalued by the market.
The firm expects to commence writing new business in these classes in the final quarter of 2014. Gable is said to have already received significant demand for niche products in the motor business from its brokers and producers in the UK, where the market size is “clearly substantial”.
For the year to December 2013, the group reported a 99% rise in underlying pre-tax profit to £11.4 million, and saw diluted earnings per share rise from 4.09p to 4.99p. This was despite the Liechtenstein-based company’s combined operating ratio having deteriorated slightly, to 71.6% from 67.4% (anything below 100% indicates a profit). The period saw a 63% increase in gross written premiums, to £58.9 million, following strong performances in the UK, France, Denmark, Norway and Italy from organic growth and new products. At the end of the period net assets were £31.7 million, including cash balances and equivalents of £27 million.
“Gable is said to have already received significant demand for niche products in the motor business from its brokers and producers in the UK, where the market size is “clearly substantial.”
Expanding rapidly
Current trading is said to be very strong across the board, with a number of new territories committed for launch during 2014 set to drive growth. A raft of announcements in 2013 concerning new underwriting agreements across Europe means that a significant amount of growth is already built into 2014. These included agreements with many of the world’s largest insurance brokers including Aon, AJ Gallagher and JLT, which could very well lead to repeat business in time. Furthermore, the recent fundraising means that Gable is perfectly placed to capitalise on any opportunities that might come along.
International expansion means that Gable now writes business in nine European countries, providing a range of products through its wholesale network of selected brokers in each jurisdiction. October 2013 saw Gable’s first fund raising since joining AIM in 2005, with a placing of shares with new and existing institutional and private shareholders to raise £10.7 million of new capital (before expenses). This was employed to increase the group’s solvency capital in order to capitalise on new growth opportunities. New business approvals have been coming in thick and fast of late. In December 2013, Gable received regulatory approval in all its European territories to underwrite insurance Classes 3, 7 and 10 and announced that it would initially focus on Italy for the launch of its first new product in the motor segment. This was after considerable demand from brokers for niche bespoke products for the Italian market. The firm followed this up in May this year with regulatory approval to underwrite new motor classifications of business in the UK, including: Class 3: Land vehicles (other than rolling stock); Class 7: Goods in Transit; and Class 10: Motor vehicle liability.
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Valuation Gable continues to demonstrate its desire for further expansion, and recent business wins have built on strong momentum of late, which is beginning to be reflected in the share price. With Gable shares trading at 87p at the time of writing, the company is capitalised at £117.7 million. With house broker Panmure Gordon looking for operating earnings of around 11.2p for 2014 the shares trade on a multiple of just 7.8 times. For 2015, the prospective rating falls to 6.6 times on forecast earnings of 13.1p per share.
Three small cap pics for H2 2014
“From a growth perspective the shares look excellent value on a PEG of 0.2 for FY14 rising to 0.4 for FY15.� Meeting these forecasts of course remains a major risk to the investment case, as does the performance of new products and general risks related to the insurance industry. Despite the good growth being seen here the figures above suggest that Gable is still being rated by the market as a value stock.
A price of 10 times earnings (a conservative valuation in our opinion) would see Gable trading at 112p by the end of the year assuming forecasts are met. This implies 37% upside potential from the current price. From a growth perspective the shares look excellent value on a PEG of 0.2 for FY14 rising to 0.4 for FY15.
GABLE CHART
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Shiller P/E points to an imminent crash
Shiller P/E points to an imminent crash By Filipe R. Costa
It seems that Mr Robert Shiller, one of the 2013 Nobel Prize winners, is becoming increasingly concerned about what he thinks is yet another bubble forming in global stock markets right before our very eyes without anybody noticing it – or at least, with everybody pretending they don’t see it. Deja vu?
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Shiller P/E points to an imminent crash
The cyclical-adjusted price earnings (CAPE) ratio attempts to smooth earnings as a measure over the economic cycle and so not place great importance on recent or operative earnings figures – either excessively high or low. This measure is also known as the Shiller P/E and was in fact created by Robert Shiller himself a few years ago. According to the measure the current level of around 26 times is well above its long-term average of around 16.5. Put simply, in Shiller’s world equities are hugely overvalued.
Take a look at the chart below which plots the CAPE measure since 1881. You will notice that the ratio has only been higher than the current level on three prior occasions: 1) during the pre-1929 crash; 2) during the madness of the dotcom bubble pre-2000; and of course, 3) during the housing bubble.
CAPE SHILLER CHART The common denominator during all these periods is of course the epic crash that followed, destroying more than 50% of the value accumulated by investors. Shiller is worried that we are once more near such a peak and that devastating losses anew are around the corner… In looking at the chart, one can say that the Shiller measure is actually very good at predicting a departure of prices from intrinsic value. If we take the historical mean as the norm, we see that when the current P/E value rises substantially, it always ends up reverting back at some point. The problem for traders is the timescale it can take to revert. I guess this is where the saying “the market can remain somewhat more irrational than one can remain solvent” comes into play.
Nonetheless, the ratio is a good predictor for over and under-valuation. That happens because, even though investors become seduced by new valuation metrics to justify price departures from fundamental value for some temporary period, they always ultimately return to the conservative measures of value. So, if at the beginning “per click” is a good measure to justify very high prices, at some point in the future “per unit of profit” is what really matters. It all starts with a rise in bullish sentiment that leads investors to speculate in a group of stocks, at first, and in stocks more generally thereafter. As these investors become more confident and change their risk perceptions, given rising prices, they are prepared to pay ever increasing valuations.
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Shiller P/E points to an imminent crash
They react extensively and everybody gets in. But, at some point in the future, something “bad” happens and the extra confidence just evaporates. At that point everybody stops looking at “per click” and looks for the traditional, conservative ways of valuing equities. Money is pulled out of the market as quickly as possible and a liquidity squeeze often ensues. It has happened time and time before and it is almost a dead cert it will happen again. As each day passes in this long bull run the odds of this occurring shorten… While the above is a recurring feature of markets, sentiment is nevertheless a difficult concept to pin down. what mechanism drives sentiment higher? Eventually some good economic data, economic recovery, improved job market conditions, or a favourable monetary policy backdrop can all contribute to an improvement in sentiment. But, while an improvement in economic conditions may drive a rational increase in the demand for equities, animal spirits always push them on beyond fair value. Human nature is hard wired to contribute to a boom-and-bust situation (as Mr Gordon Brown found out to his cost when boasting of his eradication of it!!).
If we take into consideration the timing of crashes, we see that they are becoming more frequent than they were in the past. Coincidence? Since 2000, this is now the third time that we can again observe a disconnect between price and fundamental value. The reason, in my view, is monetary policy. During the last 30 years there has been a major shift in monetary policy in the direction of much more intervention. Interest rates have been decreasing since the 1980s and have been kept near zero for much too long in my humble opinion.
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If we include the non-conventional tools (e.g. quantitative easing) that have been used by central banks more recently, we begin to comprehend the magnitude of this intervention, evidenced by the Federal Reserve’s now multi trillion dollar balance sheet. Central banks have been pushing investors into riskier assets by engendering dismal returns in “safer” assets. The extra demand leads to a rise in equity prices at the cost of a decrease in future returns. To accept lower future returns however, investors logically must expect lower risk. The problem is that risk hasn’t really decreased. Just look at the most recent crash in 2008/09 where more than 50% of value was wiped out.
“iT is always Tough To guess The exacT momenT when Things will reverT To a “normal sTaTe” when a crash will clean up The mess. iT may Take years for ThaT To happen, as we saw during The 1990s.” Investor perception of risk diminishes, as does the required compensation for bearing risk until there comes a point where investors begin to collectively question valuations and this results in a requirement of compensation reverting to the “normal” level. At that point, a crash typically results. As relayed before however, finding this “tipping” is more judgement than science. In a certain way, a crash can be viewed as a rational correction of exuberance but it can also be the result of distortion that may have been created by an agent like a central bank. It is always tough to guess the exact moment when things will revert to a “normal state” - when a crash will clean up the mess. It may take years for that to happen, as we saw during the 1990s. But in the end, it will happen, for sure. We are at least at a point where there is no justification to buy equities other than that others are also buying, and when that happens the best you can do is to stay away.
Mellon on the markets
MELLON ON THE MARKETS
Entrepreneur and financier Jim Mellon is a regular in the Sunday Times Rich List, with an estimated fortune of ÂŁ850 million in 2014. With a substantial international property portfolio and interests in a variety of companies, particularly in the alternative energy and biotech sectors, Jim is a highly experienced and
By Jim Mellon
successful investor.
August 2014
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Mellon on the markets
Parallels have been drawn, as the dog days of summer roll on, with a summer one hundred years ago, in which a certain Archduke’s assassination sparked one of the two worst wars in history. The conflict and plane crash in Ukraine, tensions in the Middle East, China’s territorial posturing in Asia, and North Korea’s unpredictability have all been postulated as modern day “sparks” that could set off another chain reaction, resulting in dire consequences.
All of these, coupled with the nose bleed valuations in the US market, and a significant downgrade in the quality of the many new issues coming to market, must make us concerned that this summer might mark the high point of many markets - for at least a while. This is especially the case because of the flagging growth rates in corporate profits in the developed world, with the exception of Japan, and the increasing use of leveraged share buy backs to affect earnings growth.
I don’t think any of these will be the big spark to set off a new major conflict however. There is no appetite for war in most of the world. The flash points cited have been thus for quite a while, and we all still live. Most of the op-ed pieces with warwarnings attached have been written with a view to try to flog Great War anniversary books
Down for the Dow?
Rather, I think we should be looking at other “sparks” which might cause different types of conflagrations – economic ones.
“I believe there are several “flash points” that we as investors should be watching out over the summer and beyond.” Flash points I believe there are several “flash points” that we as investors should be watching out over the summer and beyond. To start, these include a rising default risk premium once again in peripheral and not so peripheral (France) European bonds. The tapering of QE in the US is also a concern, and indeed, the first signs of a shrinkage in the Fed’s ginormous balance sheet, with negative consequences for interest rates. The China Crisis has for now apparently been deferred (more stimulus). But beneath the headlines which are guaranteeing growth of 7.5% this year, there is troubling news. Japan and most of Asia are engaged in what can only be described as competitive devaluations, and the Russian and Brazilian economies have ground to a halt, for different reasons.
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Let’s look at the US situation, where the massive monetary experiments of the past few years are drawing to a close. Clearly, the Fed will stop expanding its balance sheet in October – and it has already reached US$4.3 trillion. This has been announced, and in normal circumstances, bonds seem to do well in periods when there is NO QE, which is at first perverse, but then understandable as QE raises inflationary expectations, so yields tend to rise. But this time round things could be different. Firstly, I expect US growth to rebound sharply from the weather affected Q1, and indeed to accelerate. Look at bank lending in the US and you can see the evidence of a future acceleration in the economy - and inflation, which is currently running at 1.9%. Second, I think that the Fed will raise rates sooner rather than later. And third, there is a lot of junk debt out there which is in or close to default territory. These factors look likely to result in marginally increased rates on government bonds (perhaps 3% for the US 10 year) which in itself is not significant, but taken with rising problems elsewhere, might just mean that equity markets could be tipped lower. Factors aiding this decline, are of course, stretched valuations and the sheer volume of new issues hitting the markets. Robert Schiller has written that: “I am definitely concerned. When was [the cyclically adjusted P/E ratio or CAPE] higher than it is now? I can tell you: 1929, 2000 and 2007. One thing though, I don’t know how many people look at plots of the market. If you just look at a plot of one of the major averages in the U.S., you’ll see what look like three peaks – 2000, 2007 and now – it just looks to me like a peak. “ Mr Schiller’s forecasting ability on the market has not been great, and his CAPE system is not perfect – but there is the ring of common sense in what he says here.
Mellon on the markets
Global problems The US is unlikely to be the only central bank that will raise rates relatively soon. The UK has signalled that it is close to doing so as well, given that its economy, unfettered by the Euro and with a recovering banking sector, is booming. Canada, some Asian economies, and other pockets of growth are also likely to see higher rates pretty quickly. The Bank for International Settlements (BIS) has warned that leading central banks should not fall into the trap of raising rates ‘too slowly and too late,’ and has urged policy makers to tackle the huge debt burdens around the world. In its recent annual report, the BIS also warned of risks brewing in emerging markets, setting out early warning indicators of possible banking crises in a number of jurisdictions, including most notably China. The reversal of ultra-stimulative monetary policy in major economies is bound to create strains. Despite the Feds’ assertion that its reverse-repo stabilising operations will lessen the impact of the end of its balance sheet expansion, it’s hard to see how the market can absorb huge amounts of US government debt if the Fed decides to shrink its assets even a little bit. That is why interest rates in the US are likely to rise, even modestly. This rise could be the park that causes interest rates to rise much more rapidly elsewhere, in countries where economies are fragile and there is a default risk, even if that risk looks remote at the moment.
Euro problems The likely failure of the Banco de Espirito Santo in Portugal could be one such signal. It has unwisely lent vast amounts to poor credits, including Angola, and the chickens are coming home to roost. When Mario Draghi made his famous line in the sand statement that he and the ECB would do “whatever it takes” to prevent peripheral Eurozone defaults, it worked! yields fell dramatically, and the gap between the bonds of poor credit risk countries and the likes of Germany compressed dramatically. This was partly because of the depth of the recessions – which by the way, still persist – in the Mediterranean countries, and thus the fact that even low yields represented high real returns as nominal GDP and inflation fell.
But now genuine credit risk is beginning to emerge and the bonds of Spain, Portugal, and Greece look like great sells again.
“as france falls inTo a debT Trap (a spiral from which only defaulT, acTual or disguised will save iT), iTs crediT looks incompaTible wiTh super low yields currenTly sporTed on iTs debT. i believe ThaT This is a good shorT Trade.” But the trade that served us well some time again, now looks good once more. Sell French OAT bonds. France has embarked on what Gavekal, the economics firm, suggests is a secondary depression. This means that output will continue to fall, partly because its exports are overpriced in overvalued euros but also because its statis regime has done everything bar shooting to discourage enterprise. Normally, this might lead to lower, not higher, yields, but as France falls into a debt trap (a spiral from which only default, actual or disguised will save it), its credit looks incompatible with super low yields currently sported on its debt. I believe that this is a good short trade. Steen Jacobson, the well regarded economist at Saxo Bank, has also pointed out that Germany is running out of steam and may not register ANy growth next year. This is not good news for the peripheral economies, which have been kept afloat by German largesse. The irony is that the World Cup victory could be a poor exchange for weakening economic performance – after all, look what happened to Spain after 2010.
August 2014
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Mellon on the markets
I disagree with Steen on the Euro Dollar rate though. He thinks it will go up a bit before it goes down. I think you can short it here, at the 1.35 rate against the dollar and do well. This is one of my favourite trades of the next year, I think.
Commodities As I said, I think China has deferred its problems for a year. But sooner or later the fact that it takes US$7 of additional debt to propel US$1 of growth, that fixed capital formation is high, and that the shadow finance system remains out of control and highly destabilising, the country has a serious pot of trouble stewing. This is why I would still be wary of many commodities, but I like gold and silver here. My gut tells me they will do well this year, as the dawning realisation that inflation is not just something that belongs to Argentina and the 1970s seeps into investors’ minds. So gold at US$1,300 looks good to me. As does silver at below US $21.
Stocks/Indices I highlighted Gilead Sciences at the Master Investor Show as my top stock pick. It is up by about a third since then, and I would definitely top slice it here. I would be neutral or slightly short of the US market, I would be long Nikkei and short the Japanese yen as a hedge, but in less quantity than eighteen months or so ago. I am a fan of Summit plc, which is well financed and has two drugs in development.
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“i would be neuTral or slighTly shorT of The us markeT, i would be long nikkei and shorT The japanese yen as a hedge, buT in less quanTiTy Than eighTeen monThs or so ago.” Look out for the Pulse Boot Company, which in my opinion is the most exciting business I have seen for years. Also, watch out for Arrowhead, which will readout Hep B drug results in September or so and has retreated in price to a level I believe looks like a good entry point. Critical Elements in Canada, involved in lithium, is interesting and I have been buying it. I am also a fan of A-Cap in Australia, which my partner Steve Dattels and I have been buying. It is involved in uranium, which we both think is ripe for another run. I have sold out of Triton in Australia after a 12x run.
And finally... I have been finishing off my new book with Al Chalabi, Fast Forward, a guide to investors in future technology. It will be out in September, and it would be great if you could look out for it on Amazon, where in August it will be on pre-order. Have a great summer! Jim Mellon
August 2014
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The Best of the Evil Diaries
THE BEST OF THE
Evil Diaries
The man the Daily Mail dubbed “The King of the Short Sellers”, Evil Knievil (aka Simon Cawkwell) is Britain’s most feared bear-raider. He mostly famously exposed the fiction that were the accounts of Robert Maxwell’s Communication Corporation, an event which helped to earn his pen name.
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The Best of the Evil Diaries
A big man with a bigger reputation, Evil Knievil famously made £1 million by short selling shares in Northern Rock during its collapse. He also uses his knowledge and experience to buy shares, often resulting in the same devastating effect. Three times a week Evil provides his thoughts and musings on the markets only at theevildiaries.com. He doesn’t just deliberate about the financial markets on The Evil Diaries but also comments on politics, current affairs, which horses/sports bets are his latest favourites, with the occasional film and book review thrown in for good measure. Here we take a look back on the highlights of Evil’s diaries in the month of July.
2nd July 2014 yesterday Plus500 (PLUS) produced strong figures which are entirely at variance with the industry in general. Given that Plus500 do not do spreadbetting but only CFD and, further, that their site is very amateurish and looks it and that nobody in London has ever heard of them in practice, I have my doubts. As does the market since the stock opened up at 495p yesterday and promptly retired to 455p. Elsewhere, I bought 1 million Audioboom (BOOM) at 6p. This is to prove an explosive experience since, apparently, the target is 20p.
4th July 2014 I dropped by at Waverton Investment Management in St James’s Square on Wednesday evening to listen to their views on Chinese and other far eastern markets. It was serious macro stuff offered by serious micro, in the sense of thin, men - unlike this column which is offered by a macro man covering micro companies. Incidentally, Waverton sport a butler and in-house chef. I approve of that and would rather like them to play their part at home when my wife’s next away. The comments were packed with statistics. Indeed there were so many that I found it hard to keep up. But I came away resolved to be cautious about Australian investment opportunities. Australians are being paid so much by simply sitting on a commodity boom conferred by China that they are turning idle.
Mothercare (MTC) is virtually bust and therefore any recovery for shareholders (which incidentally takes the banks off the hook) must surely be uppermost in the BoD’s mind. The fact that the BoD is not prepared remotely to engage with Destination Maternity (DEST in the US) surely means that the MTC board reckons such engagement is a complete waste of time. This means that in effect there is no bid on the table and that MTC should right now be valued as if there were no bid. This takes one immediately back to Cantor’s price of 114p and if one is a little more decisive well below 100p. Anyway, Mothercare should report fairly soon and the full enormity of the deterioration should stand out.
7th July 2014 Poundland (PLND) declares that it does not sell £1 products but products for £1. But what happens when inflation renders a £1 price tag impossible? And how will Poundland brand its proposed Spanish branches: after all, calling it pesetacasa or eurobureau might not appeal much in practice? Poundland is capitalised at around £800 million.
9th July 2014 Well, I thought Goldman Sachs were masters of the universe. And now I don’t: GS offered the 48% chance for Brazil to win the World Cup. And the rest is history. Events at Plus500 (PLUS) are ploughing ahead. This is beginning to smell like a scam. I have sent out not one but two top notch investigative reporters. No mercy shall be shown. Now 560p.
August 2014
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The Best of the Evil Diaries
And still no bid for Mothercare (MTC). Curiouser and curiouser. Now 266p.
This leaves Bowleven ridiculously cheap. I have no idea why the shares sit at 39p. Has anybody?
11th July 2014
I sold Globo (GBO) short at 49p yesterday since there are notably curious features in the Greek associate’s accounts. More follows.
Shaftsinkers (SHFT) have found themselves caught in South African miners’ strike woes. At 7p it is capitalised at £3.4 million where, quite possibly, net assets are a multiple of this figure. One might be tempted to get all greedy. The problem is that once a company starts haemorrhaging like this it is best to stand back, ready to offer a sympathetic hand but not being so silly as to extend it before it’s cadaver time.
14th July 2014 For some reason, a mystery voice, claiming to be an institutional holder of more than 3% of Plus500 (PLUS), telephoned me out of the blue late last week and asked me to explain myself over Plus500. It rapidly became clear that his essential purpose in telephoning me was to advise me as to his reasons for holding Plus500. Further, he would not disclose who he was. Some people! So I made my excuses. But I would mention that when people behave like that it is almost always in support of a failing share price that continues to fail.
18th July Avanti (AVN) duly warned again this morning and now stands at 220p. Still time to get out. Mothercare (MTC) duly reported and now stands at 250p. There will not be a bid from Destination Maternity. So keep short. Plus500 (PLUS) bounced from about 340p to 440p. So I whacked it again.
21st July
16th July 2014 Poor old Gove! He just hasn’t got the legs that the incoming ladies sport. I know what I am talking about since I married a woman with good legs and have bred two ladies with good legs. Indeed, the headmaster of Rugby School announced to 1,200 Speech Day pupils and parents that my daughter Lucy had the best legs in the school. This explicit comment surprised me and my wife. But he was right.
For lunch I entertained a chum with a sustained Bolly ‘n’ Bordeaux session. After which it was horses all the way. I made £70,000. The final hoover-up job came in the last at Newmarket’s evening meeting when a chum of a chum, Andrew Reid (a solicitor - he handled Lord McAlpine’s defamation claims again the nasty soft Left about eighteen months ago - and very successfully too), offered his horse, Athletic. It gave up six lengths at the start yet won by ten lengths. This was over just seven furlongs. It was the most remarkable flat race I have seen for many years. Andrew must have made six figures in bets. I was content with my £36,000. Since I had been engaged in hard pounding from 5.30 a.m. I slept very well. The following day, I did it all over again. Delightfully, at the close, I had made £150,000 on the week just sports betting.
Bowleven (BLVN) have settled their contract with Petrofac for just $9 million.
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Zak Mir’s Monthly Pick
ZAK MIR’S MONTHLy PICK Buy Gulf Keystone (GKP): Above 75p Targets As High As 120p Recommendation Summary: Gulf Keystone, whether you are a bull or a bear, seems to be akin to the North Face of the Eiger in terms of analysis. While the collapse of the shares back below three year lows of 100p clearly suggests that the doomsters have the bit between their teeth, this monthly pick highlights the way that things may now change. The prime reason is that the book has been closed on the leadership era of former CEO Todd Kozel.
The longer this feature remains unfilled, and the longer the shares remain so far below it, the greater the risk of a fresh leg to the downside. However, the good news is that even if all we are seeing is a holding pattern before Gulf Keystone lets its shareholders down again, the chances of an intermediate rate / countermove look relatively high.
Much will of course depend on how the new management tackle what looks to be a volatile situation on the ground in Kurdistan, the legacy of retail investor disappointment and corporate governance issues. That said, the argument here is that, barring severe and new negatives from the company, at current levels it may finally be worth giving the benefit of the doubt to the buy argument.
Technicals: We have a relatively cut and dried picture as far as the daily chart of Gulf Keystone is concerned. This consists of an extended consolidation by the stock since the big inverted head & shoulders formation cracked to the downside in March. Indeed, the main negative of this move remains in place in the form of an unfilled gap to the downside.
Indeed, with the backing of an extended uptrend line in the RSI window it could very well be the case that the present range floor towards 75p remains intact ahead of a dead cat bounce. This would at least open up the chance of one more surge towards the main post April resistance through 110p.
August 2014
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Zak Mir’s Monthly Pick
The ideal scenario is that ahead of such a move the floor of a rising trend channel from April is not broken. But a visit to the 75p range floor is something which we have to allow for, knowing the volatile price action of Gulf Keystone shares. The timeframe on a 110p plus target is as soon as the beginning of September.
GKP CHART
Recent Significant News 17th July (Reuters) - The founder of Kurdistan-focused oil company Gulf Keystone, Todd Kozel, has stepped down from its board, the company said at its annual general meeting on Thursday, giving in to shareholder pressure. Gulf Keystone also announced that it has promoted John Gerstenlauer from chief operating officer to chief executive, picking an insider to lead the company as it braces for difficult times amid tensions in Iraq. In May Gulf Keystone said that Kozel, whose pay and corporate governance approach had been viewed as controversial by some shareholders, would stay on at the company as executive director, conditional on his re-election to the board.
According to media reports, Gulf Keystone shareholders had planned not to back Kozel’s re-election. 25th June (Alliance News) - Gulf Keystone Petroleum Ltd said Wednesday that Todd Kozel will retire from his current role as Chief Executive Officer of the company at its upcoming annual general meeting on July 17, 2014. Subject to re-election to the board of directors by shareholders, Kozel will take up a new role of Executive Director. Gulf Keystone said a search for Kozel’s replacement is underway with the assistance of an international executive search firm and potential candidates have been identified.
He has now declined to stand for re-election and will instead remain at the company as an officer to maintain Gulf Keystone’s relationship with the Kurdistan Regional Government.
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Zak Mir’s Monthly Pick
13th June (Alliance News) - Gulf Keystone Petroleum said it continues to be alert to the deteriorating security situation in Iraq but its operations in the Kurdistan region of the country are progressing in line with its previous guidance to reach 20,000 gross barrels of production by the end of the second quarter 2014.
The positives are that a post Kozel era offers the company a fresh start both in terms of strategy, public image and even funding. At the same time, even though the geopolitical strife is knocking on the door of its Kurdistan home, it may very well be that with Iraq in turmoil we finally see this issue sorted once and for all.
“Our operations in the Kurdistan Region of Iraq are progressing in line with our previous guidance, whilst we remain alert to the current security situation in Iraq, which has recently escalated outside the Kurdistan Region,” Chief Executive Todd Kozel said.
What may be key is that the group is able to start to ratchet up production towards the stated 40,000 barrels a day by the end of this year. Indeed, it may be said that if the Iraq issue can be dodged over the next few months, the current position of the shares languishing at three year lows is rather harsh.
The oil and gas exploration and development company said development plans to increase production capacity at its entire Shaikan field to 40,000 gross barrels of oil per day by the end of 2014 are on track, with June 4 cumulative production reaching a record maximum daily rate of 25,000 gross barrels of oil per day.
Fundamentals Gulf Keystone has been, and remains one of the most intriguing plays on the London stock market, both among those companies on AIM and those off it. The outgoing CEO and founder Todd Kozel has been described as colourful, a Marmite character and no doubt many other even more spicy names. On a personal note it has to be admitted that Mr Kozel’s sale of almost all of his shares in Gulf Keystone in April 2013, at just below £1.70 to net some £17 million, was not easy to understand at the time. It is perhaps a little easier to comprehend with the stock near 90p currently. However, the purpose of this monthly pick is to look at one of the most followed stocks around and ascertain whether at current levels we are looking at a bargain basement opportunity or not.
“Mr Kozel’s sale of almost all of his shares in Gulf Keystone in April 2013, at just below £1.70 to net some £17 million, was not easy to understand at the time. It is perhaps a little easier to comprehend with the stock near 90p currently.” However, it is perhaps not as harsh as Gulf Keystone shareholders have been to the company’s founder, in terms of effectively forcing home to take just a perfunctory role, liaising with the Kurdistan Government. But it could turn out that this “cruel to be kind” act on the part of shareholders does work in favour of the share price over the near term, and fundamentally this is what the backing here of Gulf Keystone is largely based upon.
August 2014
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Binary Corner
BINARY CORNER
How’s That “Sell In May” Advice Working Out? By Dave Evans of binary.com One stock market adage that left active investors burned last year was ‘Sell in May’. Also known as the Halloween indicator, the general gist is that stock markets perform best in the period from November until the next April. Stock market history does bear this out, with the vast majority of stock market gains occurring during the winter months. However, it is not true to say that the summer is a time to sell. Generally, the summer months have underperformed, but overall have not been loss making.
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How’s That “Sell In May” Advice Working Out?
Indeed, in 2013, anyone heeding the “Sell in May” warning on the benchmark US S&P 500 would have missed out on gains of around 10%. So far the same market is up 3% since May in 2014, although the FTSE 100 has duly obliged with some very indifferent trading since the start of the summer.
There is some evidence for this line of thought, with Professor Robert Shiller’s Cyclically Adjusted P/E ratio hitting its highest level since 2007 (see page 76 of this issue for a detailed article on Shiller’s CAPE).
Volatility has started to creep back into markets in the last few weeks, but there is no denying the feeling that markets are running a little hot.
Shiller’s CAPE & Uncharted Territory This CAPE level is high by the long-term historical standards of stock markets, but is still some way off the heady days of the tech boom. However, there is also the fact that, as well as equities, the bond market is looking over stretched too.
Could we see something similar here? We are certainly in uncharted territory right now, so betting on a large decline is at least worth a small punt.
According to market statistician Doug Short from www.dshort.com financial markets have sky high P/E ratios at the same time as ten year treasuries are yielding less than 2.5% - well below long-term averages. To have one of these flashing red is one thing, but to have both at historically high levels makes this one go to eleven.
“We are certainly in uncharted territory right now, so betting on a large decline is at least worth a small punt.”
According to Short, the closest analogy to this period was late 1936 to April 1937. The market plunged by nearly 50% over the next 15 months from the February high.
August and September have been poor months for stock markets historically, so if there is going to be a drop, there are fair odds of it starting around this time.
August 2014
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Binary Corner
These months have seen some extreme volatility, with one reason being that many senior traders are away on holiday, leaving the less experienced and more reactive juniors in charge.
The toddler is winning… Last month saw financial markets drop heavily as the news of the Ukrainian jet tragedy and the mounting death toll in Gaza fed through the news wires. The S&P 500 dropped by more than 1% for the first time in three months, but this sell off lasted just one day as the losses were made good. The geopolitical risk of these events has not been enough to shake the bulls from their position. This speaks volumes about the confidence of the bulls right now and ultimately leads back to the Federal Reserve. While the Fed has signalled it is tapering off its assets purchase programs, so far there are no indications that there will be an abrupt change of policy. The bulls markets are too complacent, but rather like permissive parents, the Fed and other central banks have so far given markets what they wanted over the last few years and are yet to truly do something that could spark the market equivalent of a toddler’s melt down in the middle of Tesco.
“While the Fed has signalled it is tapering off its assets purchase programs, so far there are no indications that there will be an abrupt change of policy.” Hazy Days So yes, stock markets do appear to be over bought. But until central banks do something dramatic, it is hard to take a punt on a major sell off in the short-term. However, there is also limited upside from here, so a special bet known as an IN/OUT trade could pay dividends here.
FTSE 100 weekly chart
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How’s That “Sell In May” Advice Working Out?
At the time of writing, an IN/OUT binary trade predicting that the FTSE 100 will close between 6,775 and 6,600 on 20th August could return 160% if successful. In other words, betting that the FTSE will stay range bound and finish between a high of 6,775 and a low of 6,600 on the 20th of August could return a profit of £16.00 from a £10 stake.
http://record.binary.com/_fMOl-DagfyAJDmLoo-HGFWNd7ZgqdRLk/3/?market=indices&time=30d&fo rm_name=endsinout&expiry_type=duration&amount_type=stake&H=6775.00&currency=GBP&underlying_ symbol=FTSE&amount=10&date_start=now&type=EXPIRYMISS&L=6600.00&l=EN
Disclaimer: This financial market report is intended for educational and information purposes only. It should not be construed as investment or financial advice and you should not rely on any of its content to make or refrain from making any investment decisions. Binary.com accepts no liability whatsoever for any losses incurred by users in their trading. Fixed odds trading may incur losses as well as gains.
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Currency Corner
CURRENCY CORNER
Two Top Picks For The Latter Half Of 2014 By Samuel Rae
New SBM contributor, Samuel Rae, is the author of the best selling book “Diary of a Currency Trader”. Having completed an Economics BSc Degree in Manchester, he quickly discovered that the retail Forex industry was for him. A short foray into the corporate world drove him to search for an alternative to the more traditional ways of making a living, and it was to the retail FX market that he was drawn and found his calling. Through persistent market participation and extensive education he has grown to become a specialist in both fundamental and technical analysis. Sam’s personal trading style combines classic candlestick analysis with a simple, logical and risk management driven approach to the financial markets – a strategy that is described and demonstrated in his Diary of a Currency Trader. Hello again SBM readers! Those familiar with my trading style on strategy will be well aware that my core focus is on price action - the idea that simple, logical price patterns form around key levels and offer me a beneficial risk to reward ratio. This does not mean however, that I don’t pay attention to what’s happening outside of the charts. Very often the catalyst behind a certain price action is rooted in a fundamental release or a geopolitical event. For this reason, and while my entries are more often than not based on price action alone, I hold a bias for each pair that I trade. I’m not averse to entering against this bias but my discretion leans towards it.
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“The Euro. This is probably the one currency at the moment in which I’m highly averse to taking a long position.” This edition of Spreadbet Magazine is all about top picks for the next six months, which gives me a nice opportunity to explain the biases I hold in two of the currencies I’m watching as we head into the latter half of this year, and offer up a little bit of the reasoning behind them. Here goes.
Two Top Picks For The Latter Half Of 2014
August 2014
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Currency Corner
EURO First up, the Euro. This is probably the one currency at the moment in which I’m highly averse to taking a long position. Fundamentally, the Eurozone is in tatters and I just can’t see this changing any time before at least the middle of 2015. Draghi and his ECB stooges took what the media described as the “unprecedented” and “daring” move of imposing a negative interest rate on deposits. While interesting, and very much food for thought, it is unlikely to have much of an impact on commercial lending.
Why? Two reasons. The first is that, when it all comes down to it, the deposit rate is not negative enough to have much of an impression. Commercial banks can avoid the ECB charge for depositing by withdrawing and holding in cash. The high cost of holding large amounts of physical currency then maybe would spur lending. However, the -0.10% rate is far below the cost of holding physical currency. The vast majority of commercial banks therefore, will likely be willing to absorb the negative rate cost.
EUR/USD CHART
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The second reason is the current borrowing activity of the banks themselves. A little over 150 banks in the Eurozone are borrowing more than €100 billion through ECB refinancing programs. The rate on these funds is 0.15% – far more than the 0.03% at which banks could borrow from each other. Why are they not borrowing at this lower rate? Because they are not financially and structurally sound enough to qualify for interbank lending - in other words, they’re still reliant on public sector support. A bank that is reliant on public sector support is far from likely to increase commercial lending, even when faced with a negative deposit rate and a low base rate. All of this equates to the necessity for much more aggressive monetary policy loosening over the next few months by the ECB, with quantitative easing high up on the to-do list. Simple supply and demand suggests that quantitative easing can only reduce the value of a currency (at least in the short to medium term) and hence, the Euro is one of my top short picks for the next six months.
Two Top Picks For The Latter Half Of 2014
YEN Next up is the yen. It has taken me a long time to become comfortable with the bias I hold on this currency, but now I’m finally happy to report that it is firmly bullish. The reasoning behind my initial uncertainty was the bold, and what now looks to have been perfectly timed, sales tax hike earlier this year. As many readers will know, Japan has suffered from nearly two decades of chronic deflation. When Prime Minister Shinzo Abe took charge for his second term in December 2012, his primary aim was to reverse this trend and reintroduce inflation into the Japanese economy. His “three arrows” policy, comprising aggressive monetary, fiscal and supply-side initiatives, looked to be starting to take effect towards the end of last year and during the first quarter of 2014. On 1st April this year however, the Japanese sales tax rose from 5% to 8%. My initial impression of this rise was that it was badly mistimed and that it could easily reverse all of the positive effects of Abenomics.
How wrong I was. Despite a small slump in consumer spending immediately following the hike, the Japanese economy has more than bounced back and now looks set for a strong third and fourth quarter. Inflation is at its lowest level in more than 15 years, and job availability has risen to its highest levels since 1992. This, for me, is a sign that the Japanese economy is gearing up to a sustained period of economic expansion, making the yen one of my top long picks as we head into the latter half of this year. As a final note, I should highlight that (as per my previous piece) I am still holding a short bias on the South African Rand. Had I had unlimited space, I would have followed up on the last piece as to why and how this bias remains – but alas, this is not the case. Good luck! To learn more about Sam’s travails in the world of currency trading then click the advert after this piece to receive your FREE book.
USD/JPY CHART
August 2014
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Technology Corner
TECHNOLOGy CORNER
THE NEXT BIG THING By SIMON CARTER
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Technology Corner
Trying to pick the next big thing in technology can be a little like trying to pick the winner of the Grand National, or guessing who’s going to be in David Cameron’s latest cabinet. For every dead cert that hits the mark, like the iPhone, there’s a hundred Sega Dreamcasts - gadgets that arrive with huge fanfare, only to sneak apologetically out the back door. Having said that, there’s no harm in taking a little peek forward, polishing the crystal ball (there must be a ‘crystal ball’ app, surely!), and trying to figure out what we should be getting excited about, and who’s going to be taking our hard-earned cash over the next few months.
iPhone 6 OK, so I’m not exactly testing myself with this prediction, but like it or not, we still live in a time when Apple product launches generate more digital column inches than pretty much anything else in the gadget world. With no word from the California giants as yet over the latest device, we have to churn the rumour mill to see what to expect. All aluminium design, a return to curves, a bigger screen, ludicrously thin… it’s all stuff we’ve heard before.
But there are a few things we can count on. One, it won’t be cheap, and two, it’ll sell like the proverbial hotcake.
“There are a few Things we can counT on. one, iT won’T be cheap, and Two, iT’ll sell like The proverbial hoTcake.”
August 2014
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Technology Corner
Oculus Rift While its name makes it sound like a tie-in product from the latest Transformers movie, gaming fans have been dying to get their hands, and heads, on this virtual reality (VR) games machine since it was first teased a couple of years ago. The concept of VR isn’t a new one, but it is a concept that’s never been done well, meaning that the guys behind this model can count on the world’s patience. As long as they get it right.
And so far the signs are good, with $350 development kits being sold around the world, and videos of the device in motion surfacing regularly. Of course, all consoles live and die by the games themselves, so expect several flagship titles to be released when the Oculus Rift finally goes on sale.
More Wearable Tech (and Google Glass 2) Currently, there are three avenues that the wearable tech creators are treading. First out of the gate was the fitness tracker market. Devices like Fitbit, which track your day to day movements before berating you in the form of beautiful graphs that tell you haven’t walked enough, once seemed positively futuristic before scores of early adopters started ‘forgetting’ to wear them. This avenue seems to have turned into a cul-de-sac with the release of KGoal (I’ll let you Google that one!). Next was the smartwatch, the height of ‘spy cool’, slowly being adopted throughout the gadget crazed western world (and, of course, Japan). You know a product has landed when tech companies start fighting about it, so it’s encouraging that Google and Samsung are falling out about Android Wear.
The most exciting product in this area is undoubtedly the Pebble Watch, which is causing mouths to go ‘wow’ wherever it goes. First previewed in this very column months ago, the Pebble is definitely the next big thing. The third avenue? Well that belongs to Google Glass. For more info about Glass, see June’s edition of SBM, but keep your eyes open (no pun…!) for Google Glass 2. Details are sketchy (aka non-existent) at the time of writing, but expect snippets of information to leak out as an announcement nears.
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Technology Corner
4K Television Although genuine 4K HDTV content is hard to come by – Netflix being one of the few to offer such high quality images – there can’t be many gadget fans who aren’t excited about the new standard in television. So how is this the ‘next big thing’? Well, it isn’t really, but the second half of this year, and especially the run up to Christmas, should be dominated by a price war. And with the average price of a unit currently at around £3,000, that price war can’t come soon enough!
“The polaroid Socialmatic socialmaTic camera has neverTheless caughT The imaginaTion of iTs TargeT markeT.”
Finally, not the most technical device, and not one that will have you instantly reaching for your wallet, the Polaroid Socialmatic camera has nevertheless caught the imagination of its target market. So, what is it? Well, it’s a camera that prints its own photos. So far, so very Polaroid. But the revamped design and the inevitable social features have made this a hit before it’s even been released. Looking for 2014’s next big thing? This could be it.
August 2014
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Markets In Focus
MARKETS IN FOCUS JULy 2014
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Markets In Focus
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Thank you for reading. We wish you a profitable August!
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