Tom Winnifrith’s Big 10 Macro calls for 2015
By Tom Winnifrith | Thursday 25 December 2014
Tomorrow I start serving up my ten tips of the year. On reflection given my bearish take on the markets I am going to go with a 50/50 long/short split. Other writers will be serving up plenty of buy ideas but I cannot bring myself to do that given my macro-take on the world. I am sorry to be so gloomy this Christmas day but for what it is worth I wish you a Merry Christmas. Now to the macrobabble:
- Oil prices will average $65 (Brent) in 2015. I expect a slight pick up later in the year but pronounced weakness in Q1. Against such a backdrop I fear that you will see major capital projects pulled, no rush for M&A activity and those companies burning cash or over borrowed struggling badly. Steve Moore and I are long on no oil stocks and oilers will feature in my five to short. We will not turn bullish until we have seen a raft of PLC collapses and some boardroom heads rolling – we need to see blood on the streets.
- The lower oil price will boost global GDP Growth. I expect it to be positive in 2015 with the USA and UK again leading the way. The Eurozone will remain in fudge-adjusted recession. The wild card in China since its financial system is inherently unstable based on a flowed banking system and flawed central planning. I do not know if that bubble will pop in 2015 but China will not be an engine of growth. So growth will not be anything like explosive.
- For that reason we expect resource stocks to remain unloved. Again we want to see more corporate failures, more boardroom heads rolling and hopefully some jail time for those who lied most aggressively during the bull years before we get interested. We need blood on the streets. So far there has been a trickle of blood in resource stocks we want to see rivers of the stuff before we turn bullish.
- Interest rates in the UK will rise – at the earliest – in Q3 and by not a lot during 2015 if at al. The US will be similar. The indebted consumer cannot afford increased borrowing costs and given the dependency of both economies on consumer spending I do not see material monetary tightening as likely.
- Both the UK and US economies will see upward pressure on wage rates and this will be something that many firms will find hard to pass on to end customers. There could therefore be some margin shocks more than offsetting any benefits from lower fuel prices.
- Business confidence in the UK will remain less than clearly bullish. The General Election will be a fear especially as it is almost certainly going to produce a hung Parliament and possibly the nightmare scenario of a lab/Lib and possibly Scots loon coalition.
- Postponement on B2B orders, patchy B2C spending, upwards pressure on wages, recession in Euroland and the disruption/fear caused by at least one major ISIL atrocity I the West ( I am sorry to predict that but I expect it) will see a continuation of the pattern of profits warnings. Earnings visibility for UK PLC will remain poor.
- Given that backdrop equities in the UK and US remain fundamentally overvalued. My 2015 year-end target for the FTSE 100 is 5950.
- House prices in London are slipping and are now rising more slowly outside of London. In terms of Long Run Price to Earnings or yield metrics UK residential property is seriously overvalued. I fail to see the attraction of UK housing as an investment class although I’d expect it to outperform equities in 2015. On fundamentals housing is more overvalued than UK Equities.
- AIM will remain beset by fraud and scandal. The regulators will do nothing. However I expect to see increasing shareholder activism in 2015 to oust useless board or to block greedy directors whether it be institutional (EMED) or PI based (Beacon Hill) this will be an increasing trend. Expect the first class actions against directors and advisors of an AIM listed form (no prizes for guessing which one) to start in H1 2015. I hope this will start a trend.
I tend to look at stocks from a bottom up approach and so macro babble is largely macro babble for me but it helps shape my thoughts on where the world is going and how that affects earnings visibility and other matters. My ten share tips of the year start tomorrow here on ShareProphets.
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