The sugar rush of QE has begun to wear off in 2014 as we suspected it might.

So under noted are some brief comments on current markets, concerns and conundrums.


We wrote several times in the second half of last year about the stratospheric valuations of certain market sectors; specifically social media, cloud computing, 3 D printing and baby Biotech.

Companies such as Facebook, Yelp, Netflix, Salesforce and Twitter traded at multiples in the hundreds, reminiscent of the pre millennium internet valuations (and that did not end well at all).

The value investors such as Seth Klarman and David Einhorn wrote of insanity pricing and the market for a time took absolutely no notice of the warnings; up, up and up some more.

However over the last 3 months these stocks (along with the less newbie, but some would argue similar and equally hyped companies, such as Amazon and Rackspace) have lost between 30 to 50% of their value.

The big picture point of view on this is that it’s a healthy sign.

Markets are not over confident in general; the profound shock to the collective psyche of 2008/9 has not worn off. Sure, stuff will get overpriced for a time, and if the market is drinking the red bull of QE it will be more pronounced; beyond the momentum investors who went along for the ride and the unfortunate private investors (joining in late and left holding the sack as the smart money exits), no real damage done.

The take away is that for those who dare to invest in companies which are long on stories, hope and promises and short on profits then this is what you’re going to get if you don’t guess right about when to jump off.

Ukraine / Russia

Trying to understand Russia and their idiosyncratic economic and political aims is damn near impossible.

Why would Putin pick a fight with no obvious end game; what is he trying to achieve?

They can’t invade Ukraine without risking a war with NATO, the West won’t send troops unless it has no alternatives left so all that likely happens are sanctions and economic damage.

Damage to the Russian economy, reputation, massive loss of external investment (all sorts of projects have been cancelled by foreign companies in Russia) and enormous withdrawals of foreign capital???

The other side of the coin is that Putin’s popularity in Russia has rocketed, this may be his reason, his win, but how does it end well?

As long as it’s just lots of political condemnations, skirmishes in outlying regions and sanctions on individual Russian businessmen then it’s a lot of noise and not much else.

The concern is that if intention is unclear and motives opaque (as they both are with Putin) then this has got to make you nervous.


I have fought a lonely battle over the last 18 months, mocked and humiliated.

A man in the wilderness forsaken by colleagues.

This sad tale is about an Apple, a great Apple which had gone from king of the bowl to viewed as past it’s sell by date, wrinkly, desiccated and inedible.

They, (my former friends) crowned a new king, a river, the mightiest river, my colleagues loved Amazon.

I asked repeatedly, why are there no profits? I’ll tell you why, Geoff Bezos spends them all ! They have eroding margins and selling more stuff is not the measure of a great business, making more money is.

Deaf ears, only deaf ears.

But I kept the faith, I believed my apple would blossom again.

Then last week it ripened anew, announcing higher profits, more sales, buybacks, a stock split, rumoured joining the DOW, iwatch, mobile payments, new iPhone to come.

A veritable avalanche of juicy validation.

The shares, last year as low as 420 are now 600.

I am no longer a prophet without a profit!

Oh and Amazon is down 30% this year!!!!!

UK housing

The latest figures this week show a double digit growth in house prices over the last year. This has occurred even though it remains difficult to get a mortgage and much higher deposits are required.

Housing values are around 30% above the long term average but they have been so for a protracted period.

The UK is land constrained, and even if the booming London market is discounted (London really isn’t relevant to the UK, it’s a world city) demand is plainly strong.

The only concern is that we have experienced an inversion of the historic recession dynamics.

Historically recessions followed booms which had created inflation which caused interest rates to rise which of course put up mortgage costs, chocked house sales, lowered prices, caused negative equity etc etc.

This time exactly the opposite has happened.

House market boomed (normal), Western financial markets imploded (not normal), economies imperilled (not normal), interest rates SLASHED (not normal), historically low rates for going on 5 years now (not normal), only recently housing prices are moving up.

So what happens when interest rates rise?

The economists are loving what’s happening because it’s never happened before so they can write books and endlessly discuss possible future permutations (on the one hand this, on the other hand that).

Truth is nobody knows but it actually will be interesting?!

NOTE: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.