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

 

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‘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

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​‘....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

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​​​‘…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...the view that it represents the tip of a systemic duration risk iceberg and a tipping point for deep recession 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

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''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. 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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​​'A key question this year will be whether we are still early in the bubble inflation phase for AI as a market driver or about to get a reality check as it proves slow to monetize. We’re not in a bubble right now on any historical definition (and the biggest in 2020/21 was in sovereign debt), and a question worth pondering is whether we are in Japan 1985 or 1989, or Nasdaq 1997 or 1999? The S&P 500 trades at 20x forward/5% earnings yield, with the big 8 tech on 28x, but even that multiple is a fraction of the parabolic lunacy seen in 1999/2000 and the ‘biggest Nasdaq annual rise since 1999’ headlines are deceptive. We saw a mean reversion of 2022’s growth/quality factor losses and a key question is whether AI now does to the market over the next 12-18mths what the internet did 25 years ago and drives a climactic FOMO melt-up. That is feasible, particularly if the policy backdrop via liquidity/rates is supportive...'  Market Insight, 3rd January 2024

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'When you look at any action to close the deficit, the math starts to look pretty deflationary – it inevitably involves entitlement/discretionary spending down materially. A cyclically adjusted 3% deficit within four years would be about a 5-6% primary balance fiscal consolidation, one of the biggest ever, and most of the others were forced on distressed EM government by the IMF. That fiscal drag over the second term isn’t in the mix for the consensus, and I suspect it may be front loaded. In the last note, I questioned the consensus assumption that the economy will be more inflationary post the Trump win than otherwise expected, and that it was worth considering that depending on the sequencing of tax and spending changes, Trump 2.0 could be net deflationary within a year. The possibility of a very significant headwind to payrolls, growth and inflation is a tail risk being under priced…the most expansionary, pro cyclical fiscal policy in US history has exacerbated capital misallocation.. The consensus sees reacceleration in earnings growth, a rebound in capital investment, strong productivity growth, more favourable tax policy for companies with large domestic revenues/high capital investment, and easier regulatory policy. However, nearly all US valuation metrics are now in the 95-100th percentile over the past five decades, with EV/Sales, EV/EBITDA, CAPE and cash flow yield the most stretched. However you cut it, there isn’t much room for earnings disappointment next year.…’. - Market Insight, 26th November 2024

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'Over the balance of this decade, the defining development will be the industrialization of intelligence, which is driving a capex boom similar to that in energy in 2014-18, and which similarly will prove a net deflationary force as we end up with a compute glut and investor revolt. The handful of bears still standing are all focused on inflation, excessive deficits and a resulting bond tantrum calling time on equity euphoria. As highlighted recently, a deflationary US fiscal tightening plus AI shock is the left field risk nobody is positioned for. AI doesn’t need to immediately displace millions of workers to have a dramatic macro impact. Growing fears of its imminent threat to employment/bargaining power would be enough to curtail discretionary spending among high income knowledge workers.’ - Market Insight, 6th January 2025

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