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Annus horribilis [Cash is King]

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Vinod Khosla who bagged a billion or two Dollars at Sun Microsystems [When I arrived on the Trading Floor at Credit Suisse First Boston in the early 1990s every computer was a Sun Microsystems Computer] said

''The Future is not seen in the rear view Mirror.''

In my last article, we looked in the rear view Mirror, we remembered The Queen who said in 1992

''1992 is not a year on which I shall look back with undiluted pleasure. In the words of one of my more sympathetic correspondents, it has turned out to be an annus horribilis''

Subsequent to that article, The US markets swooned and served up the worse Christmas since 1931 [I think]. President Trump was holed up in the White House [except for a short visit to Iraq]

“He’s trapped,” Murphy told the Washington Post . “He’s playing poker holding two threes and suddenly putting all of his chips in. It’s pure emotion, the mark of a panicking amateur.”

Nancy Pelosi mocked Trump’s ultimatum “Now he’s down to, I think, a beaded curtain or something, I’m not sure where he is.”

The thing is a New Year beckons and what I recall is that January is the month for Bargain-hunting. So lets try and peer into the Future

What is a ''Known Known'' is that Trump-related political volatility is surely a Buy into 2019. Prediction markets have Impeachment before the end of the first term at 50%. Markets down-shifted interest rate expectations in the US in the run up to the end of the year. The US Fiscal story is popping over the radar. The US Dollar whilst seeing its share of global FX reserves fall to 61.9% an almost 5 year Low, is still the Elephant in the room. A strong Dollar is the equivalent of administering a Caning when it comes to Emerging and Frontier markets. The direction of the Dollar is therefore pivotal. I am increasingly in a minority but I expect the Dollar to strengthen about 10% through 2019. Folks are keenly looking for chinks in the US Economy. If the US Economy slows, I can guarantee you the Rest of the World will slow further.

After quaffing Malbec wine with their Argentine Sirloin steaks in what was a widely anticipated ''Truce'' Dinner, the markets will be watching developments very carefully. The Trajectory of the Tariff War is another pivotal Curve to keep an eye on in 2019. China has been delaying some data releases and high frequency satellite level data confirms a sharp slow-down in the Chinese Economy which has yet to be seen in official data points.

The Financial Times is reporting that Juncker is telling the UK to ‘get act together’ on Brexit. The UK remains a political conundrum. The recalcitrant Jeremy Corbyn refuses to pivot on Brexit and surge into 10 Downing Street on a ''Youthquake'' wave. Prime Minister Theresa May who came to Africa and danced in 2018 is still there like Geoffrey Boycott and that of itself is an achievement. The Pound has not priced in a hard Brexit nor has the Euro.

Europe remains off balance. The French have always been prone to take to the Streets but President Macron clearly has to deal with things with plenty of finesse, now. President Putin is snapping at the edges and his European Portfolio continues to grow.

The new Certainty seems to be Uncertainty.

Commodity Markets are also a natural cleavage. Crude Oil slumped coincident with the Khashoggi incident and has been in Free-Fall. Crude Oil is a big Pivot for 2019. The esoteric Carbon Credit markets were the best performing commodity in 2018 adding more than 200%.

Emerging and Frontier markets endured a torrid 2018 well with some exceptions, Jamaica interestingly was a Stand Out. African Eurobond Yields [$81b issuance in the last 4 years] soared to 4 year highs. Credit Cards are maxed out just as the interest rates are being dialled higher is what is called a ''double whammy''. President Kenyatta made a comparison between Japan [Debt-to-GDP] and Kenya's but the crucial point is this, Japan pays 0% for borrowings out to 10 Years. I like 30 year maturity African Eurobond Paper not necessarily at todays closing levels. Double Digit Yields will be difficult to resist after sifting through the credit risk. You might consider putting together a Portfolio and leveraging it 50%. 30 Years is a long enough Off-Ramp to get our Ducks in a row.

In my next article, I will look into my Conviction Trades for 2019.


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