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Recent Key Published Views
Opportunity Lies at Inflection Points in Consensus Market Narratives


Excerpts from published notes, full archive available on Bloomberg at ENTX upon request


Nearly every Wall Street strategist (having been 20% plus too bullish coming into 2022, because they underestimated the Fed inflation response) now expects the next few months to see new lows tested, down to 3000-3300 on the S&P 500 in several cases.  It never pays to be contrarian for its own sake, but the pain trade is clearly a squeeze higher. The obsession with these spurious index targets, based on a simplistic earnings multiple/equity risk premium framework, never ceases to amaze me – as with the assumptions fed into any model, the old adage of garbage in, garbage out applies. And of course, in markets, with their psychological component via benchmark performance anxiety and crowding (nowadays reflected in option as much as cash activity), a deluded consensus call can unwind violently.’ - Market Insight, January 5th 2023

‘That strategic portfolio rebalancing backdrop as much as the second derivative inflation one should support US long bonds…in that duration positive scenario, with big tech cost cutting accelerating and much of the pandemic demand ‘pull forward’ (e.g. in ecommerce, where having overshot 5ppts in 2020/21 we are back to the long term trend online growth share), and valuation metrics back to 2018-19 average or below, all we need is a new growth narrative for the wider tech sector to hurt consensus u/w positioning, which the arrival of the AI ‘application layer' may provide.’   - Market Insight, January 30th 2023

Many are now thinking that the pause will have to be at 5.5% or higher, as implied market expectations have flipped from behind to ahead of the Fed, but there is a growing disconnect between the micro and macro levels. While there was wide dispersion in the Q4 results, companies are not broadly reflecting an accelerating US inflation/tightening labour market narrative, quite the contrary. I’d highlight the comments from consumer staples companies above, echoing those from Wal-Mart – it is getting much harder to push through price rises using commodity input costs as an alibi and gain the ‘margin carry’ we saw last year. It’s also striking how many US companies are reporting that hiring has become much easier; for instance the Hilton CEO stated that: “we are not fully back to where we were in terms of access to labour, but we’re getting awfully close” while Yum Brands (KFC and Taco Bell), said “we’re seeing an increase in applications, stores [are] returning to their pre-Covid operating hours . .” The S&P 500 remains stuck in a broad 5–600-point trading range since last summer, as reiterated in the 30th January note. Although technical analysts are now hyperventilating about downtrends and moving averages being broken to the upside, to see a rerating from a late teens multiple, we need to see a big shift in the equity risk premium driven either by an earnings reacceleration or much bigger bond rally.Market Insight, 28th February 2023

‘…it’s important that it doesn’t distract the Fed from getting the job finished on inflation (i.e. the Arthur Burns 1970s error) – the same is even more true for CS and the ECB. The IB talking heads demanding an instant monetary policy pivot were doing the same for the UK last October, and in weeks like this it’s usually best to switch off financial TV…and possibly even the Bloomberg, because the noise to signal ratio rises faster than CS credit default swaps. While US growth expectations in particular will take a hit via the credit availability channel, the view that it represents the tip of a systemic duration risk iceberg and a tipping point for deep recession and cutting rates within months looks overblown, as with the read across to Europe/Japan at an earlier stage of the policy/NIM cycle, the CS saga notwithstanding...after the endless series of crises, this is no Lehman shock, even if Swiss regulators finally put it out of its misery (we can only hope).’ - Market Insight, 16th March 2023

'I took a sanguine ‘glass half full’ view at the beginning of the year because consensus expectations were exceptionally low for corporate earnings generally and large cap US tech specifically. A key point has been that while the equity risk premium was uncompelling and absolute equity/credit multiples in the historical top few percentiles ex EM/Europe, historically high global nominal GDP growth was a bullish tailwind for nominal corporate earnings. The consensus bearish stance was reflected in positioning, which began to get squeezed from February. The underweight in US equities (and reallocation to Europe) deepened through Q1, particularly among global value funds, and largely paid off in index terms but in terms of aggregate IBES bottom up earnings estimates for Q2, the US seems set to see the biggest relative upgrades.' Market Insight, 5th May 2023

'For all the headline hype about highest (nominal) market level in 33 years, on a real and FX adjusted basis Japan has been a laggard with plenty of further room to play catchup in relative valuations. Foreign inflows have resumed after a strong reporting season, above consensus growth and a perception among US investors that Japan is now key both militarily and in terms of tech supply chains to China decoupling. Global funds remain underweight Japan and the recent six weeks of net buying has nowhere near offset the huge selling that persisted for most of last year. I’ve recommended an overweight stance focused on a high conviction list of undervalued deep IP moat names. Indeed, Japan is a disproportionate share of the thematic stock baskets, from Sony to Renesas, Murata and most recently Rohm added earlier this month. Over the past decade, these niche global dominance plays have delivered many spectacular large cap performers worthy of US SaaS (such as digital motor maker Nidec which delivered over 10x in the decade through 2021, by which time it had become a must own for foreign funds reached an Nvidia level PER and I took profits.' Market Insight, 25th May 2023

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