The Dow: Calling A Top That Could be THE Top

Given the way that everyone and their dog makes calls on the major markets, and have so far got it wrong on the bear side over the past 10 years, joining this particularly losing herd does not appear to be sensible. However, after a decade, and given that we are fast approaching the end of the decade – when Crashes tend to happen (1929, 1987, 2008 etc), it seems wise to at least be on guard for cracks in the bull market. In fact, the obvious thing is to wait for the market to tell you, rather you attempting to dictate terms. For example, blaming the bond market, end of QE, EU crisis, trade wars, Donald Trump, Brexit et al. To this day, October 5 2018, they have all been wrong and all the experts have been wrong. But there is always tomorrow to get it right. If only because October is traditionally regarded as Crash month.

DOW

But in this instance, it is not the fundamentals that are dictating a correction for the stock market in general, and the Dow in particular. It is a chart pattern, the Rising Wedge. The end of this week has seen the U.S. benchmark break what is usually a reliable technical formation – largely on the basis of risk / reward, as well as being a sign of persistent selling pressure towards a certain zone. In this case it is 27,000, and 26,618, the January 2018 peak. Below this, and below the floor of the wedge, nominally at 26,600, we have a top in the market. While the bears may be hoping it is THE top, a return towards the 200 day moving average area of 25,000, which seems to be what will happen next does not qualify as a Crash, however tempting it is to call one after a decade long artificially induced bubble.

Aston Martin: A £5bn IPO That Is £4bn Overpriced

My interest in Aston Martin’s forthcoming IPO began around 18 months ago when it was obvious the car maker was on the runway to a stock market float – fawning interviews / puff pieces (both ongoing), but with the company going all coy on me. Presumably, I was not deemed to be the one to scoop the story. Interestingly enough, you will be hard pressed to find any article anywhere even questioning the merits of this particular deal – it is all James Bond the DB5.

This summer though, the inevitable has been wheeled out, with an estimated £5bn price tag. One’s initial reaction is good luck and well done. But the reality here is that this is a £5bn valuation which is some £4bn overvalued.

We are looking at a company about to trade on 10 times revenues, and a price / earnings ratio of more than 100. Ferrari for instance, is riding around a prospective number of 20 for 2020.

There are several reasons for the Emperor’s New Clothes syndrome applying here at Aston Martin. Firstly, we are 10 years into the world’s greatest bull market / asset bubble. Even the Sinclair C5 or Robin Reliant could have managed bloated valuations given such a straight line of good economic fortune.

Aston Martin has historically oscillated between profit and loss and it there is no reason to assume this will not happen in the future. After all, a £20.8m profit for the first half of this year is simply too fine a margin should the market stall.
And even if you say the national icon will make £50m for the year, how does this add up to £5bn? It does not. We are at an economic bubble peak, and even though Aston Martin is a National Treasure, from an investment perspective the rating is higher than Ben Nevis.

Something to remember is that quality of the type delivered by luxury car companies is not scalable, and even if it is, the scarcity value is lost. God forbid there is an Aston Martin hatchback, motor bike or brand dilution with holidays, hotels, and other bric a brac. Much is also made of the opportunity of going electric, but there is not even visibility in this area for Tesla. Indeed, electric could kill the fossil fuel car peddlers, we simply do not know.

Of course, the IPO has a Best of British feel-good factor, and brokers in the City need something to help recoup bonuses after unquestioningly accepting the Trojan Horse EU regulation of MiFid II and ESMA.

Unfortunately, Aston Martin is not a tech company where profits do not matter. It is a nuts and bolts business which has to have a down to the ground rating. In this case £1bn would be more enough to start, with or without James Bond at the wheel. One might buy some shares to put on the mantelpiece, but if pushed, buying the car still seems more attractive than buying the stock. Ferrari nearly halved initially after coming to market – before soaring. Aston Martin could also prove to be a roller coaster.

Prudential (PRU): Pre M&A Flushout?

It may be impossible to believe that there may be some readers of Zakmir.com who are not familiar with the technical analysis classic, “101 Charts For Trading Success” published by a rather obscure former derivatives broker. In this tome there were at least a couple of gems. The main one however, may have been the observation that ahead of almost all M&A deals – most specifically 4-6 weeks before, there tends to be a final flushout / bear trap. According to the book, the inadvertant or possibly deliberate motivation behind such “shaking of the tree” is to ensure that anyone accidentally long of a stock ahead of say, a bid, will sell out / panic out. They would therefore miss out on the potential booty that lies ahead. pru

 

While there have been rumours associated with insurer Prudential since the dawn of time, and they may be as false now as they have always been, it can be seen on the daily chart that in the middle of July there was a brief bear trap dip towards 1,700p.

prulogo

Today the stock was up just over 3%, something which is at least a vague sign that something may be going on here. Even if this is not the case, today witnessed a great key reversal to the upside, with a clearance of 1,840p likely to lead to the 1,960p May resistance zone relatively quickly.  Only back below 1,760p might suggest that we are looking at yet another false dawn.

How Much Longer Can Great Britain’s Worst Ever Prime Minister Last?

What talents does Teresa May actually possess apart from the ability to cling onto power, and be the last person standing after the bruising Conservative Party  leadership battle two years ago ?

Well, there are some echoes of her predecessors to compare and contrast, elements of which seem to have some resonance. For instance, she seems to have the negotiating prowess of Neville Chamberlain (Peace in Our Time). A little of the jarring charisma of Alec Douglas-Home (Landed Gentry in a time of 1960s meritocracy) . The ability to lay down the gauntlet (Who Governs Britain?) like Edward Heath or the crisis management skills of Antony Eden. The sense of timing of Gordon Brown (Selling Gold at under $300), and of course the gambling skills of David Cameron on the EU Referendum.
It would appear that in the shape of Theresa May we have a leader who is a greatest fails compilation of all her predecessors rolled up in one.  Not so much “strong and stable” but rather more wibbly and wobbly in character.
That is not to say that Mrs May does not have an ace up her sleeve to mitigate any flaws. It comes in the form of the Big, Bad Wolf, Jeremy Corbyn. She can always say and no doubt has done countless times, that unless her party and the electorate back her it will be a case of the last one leaving the UK having to turn the lights off.

Indeed, given the alleged mayhem that would result in the aftermath of Prime Minister Corbyn one would imagine that there would be no lights to switch off.

But this apparent existential threat to life and limb notwithstanding, it still seems to be a miracle that the current incumbent of Downing Street has lasted so long. Ironically, at first it appeared that her leadership was such a mistake, the result of all the competent candidates stabbing each other in the bag and the front, for her to resign or be kicked out would merely underline the sheer folly of what had happened.

The aftermath of the whitewashed Brexit vote has,  as many have observed been a time when we needed to have an ultra strong competent leader in the mould of a Churchill or a Thatcher, rather than someone who would struggle to maintain order at Saint Trinian’s.

In fact, it can be said if one wants to be just a little charitable, that the Prime Minister does have at least one core competence, she  is remarkably good at reading prepared statements in a crisis. That said, it seems that the only plus point of Theresa May going on over and above the way she is the stop Corbyn candidate.

However as we saw from the Brexit vote, threatening the arrival of the Big Bad Wolf may not be any more effective than Project Fear was in 2016. The Great British voter proved then it can be quite happy to be voting for something which would have masochistic consequences, if this is the only way to protest against the ruling class.

It could very well be that while we may enjoy months or even years of Mrs May in power, the longer she stays there, the bigger the pent-up demand to get rid of her and elect Mr Corbyn with a sizeable majority.  The analogies here would be Jim Callaghan clinging on until May 1979 and John Major ahead of Tony Blair’s 1997 landslide.

The Chequers sell-out has almost certainly been a catalyst to make such a scenario all the more likely, especially as it has underlined has been clear for years by her actions that Theresa May is an arch Remainer. There is nothing wrong with this – everyone is entitled to their own opinion, but hiding the fact was disingenous to say the least. Now she has two years on her CV as PM she clearly does not mind all and sundry knowing this fact.

Consequently, we have not had two years of transition towards Brexit we have actually had an Inverse Brexit whereby as much EU regulation as possible has been crammed in. Most notably City of London Trojan Horses MiFID II, GDPR and this month’s draconian ESMA regulations. All of these were waved through without a single bleat from the UK.

Alongside this there have been assurances regarding freedom of movement and the right to remain – for everyone and their mother. . So we have seen exactly the opposite of what was voted for. Not that the purpose of holding the vote was anything to do with such matters.

If nothing else we have learnt the power of the EU political and economic protection racket and how deeply entwined the political class and big business in the UK is with the Brussels gravy train. What was always a spider’s web of red tape and sovereignty erosion has become a permanent straitjacket which Westminster is obviously delighted with.

All that remains to be seen is how soon the penny drops regarding Mrs May’s Brexit stance deception, her inability to organise a drinks party in a brewery, and the reputational damage to this country in Europe and beyond. She is someone who should never have been more than a lowly minister, by a series of quirks of fate, occupying the top job as if some latter day Forrest Gump. Sooner or later the consequence of this will become all too apparent.