MELLON ON THE MARKETS
drug was approved. Chronic constipation sufferers rejoice! In other areas of technology, the bandwagon rolls on. Uber raised money at a $50 billion valuation; it is now an UBERcorn! It is also ridiculously expensive and falls into a category of company becoming quite prevalent in the US. It’s too expensive for anyone else to acquire, and it’s not certain that there would be any upside in an IPO, as even the most demented US retail investor might baulk at a price demanded by Uber’s venture capital owners. But overall, while there has been a pretty maniacal level of activity in the venture capital area of the US – and now in Europe – technology stocks, at an average of about 26x in the US, are not as ridiculously expensive as they were in 2000, prior to the first internet bust. That’s why I don’t see a huge fall coming in US markets – but I don’t see much upside either. The US market has barely budged this year; share buybacks, the sustaining factor in the bull market of recent years are declining; and overall earnings are declining, too, albeit modestly. This has been heavily influenced by the strength of the US dollar, as well as by the energy sector’s collapse, but there isn’t a lot of traction in many sectors of the US – and that’s why I prefer Japan. I also bought a little China when the blood was flowing in the streets, but that’s purely a short term trade. (For those, please follow me on Twitter at @ jimmhk). And by the way also, I think crude oil might be due a bounce. Perhaps 5%. Most of the US shale producers are consumers of cash at current levels and Iranian oil won’t flow in quantity for years. The endless subject of discussion, of course, is when interest rates will go up. Who cares? They are going to rise, because the misallocation of capital that zero interest rates has caused with resulting falls in productivity is a disaster that even central bankers have recognised. That’s why you should sell bonds (except possibly very long-dated US bo-
nds), and particularly gilts and Euro bonds – most notably, the bund, for which I remain a big bear. A couple of stocks to consider... notwithstanding my comments on Oz, there is a bit more to it than sybarites and mining. A company which is very interesting is Rhinomed. I hosted the CEO at my lair in Ibiza recently, and in between rosados, became convinced that their antisnoring technology is compelling. Load up on a few. On a somewhat different scale, the Dutch Bank, ING looks cheap to me, and although the equivalent of flagellation for banks, fining, is proceeding at an unceasing pace, they seem to have weathered their canings and now it looks like a good franchise. Remember, there is a price for everything. I would also buy the German company Siemens, as a dull but worthy participant in new medical technologies, the transport revolution and even the Internet of Things. I made some money buying the DAX low and then stupidly shorted it prematurely, but I think it’s range-bound and you have to pick your German stocks. Kuka remains a top pick in robotics.
I am getting more convinced that solar will be a vital component of energy supplies worldwide very quickly and I intend to do research on it and present you with ideas in the next edition. Alan Steel has asked me to speak to his clients in Edinburgh when I’m up there for the Festival, and after the talk Master Investor Magazine will provide a link to the slides.
“the misallocation of capital that zero interest rates has caused with resulting falls in productivity is a disaster that even central bankers have recognised.” Meantime, it’s the weekend in Ibiza and a beach lunch beckons. Happy Hunting! Jim Mellon
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