04.05.18

Snapshots was disappointed to hear Elon Musk, a respected and talented visionary, call analysts’ financial questions “boneheaded” on an earnings call yesterday.

Normalisation

This business cycle has been characterised by the capital markets allowing new technology companies, such as Tesla, to burn through large amounts of cash as they try to grow into their forecasted business models.

As monetary policy normalises, the cost of capital is rising and we expect the bridging of capital to these potentially unknown future revenues to be questioned more rigorously.

In this sense, Elon is not fighting against analysts. He is fighting the Fed!

Normalisation

We were lucky enough to hear another visionary, Ben Bernanke, talk about the Fed’s policy and the markets at an event hosted by Citadel Securities.

His message was very clear. We are moving from a world of emergency monetary policy to a more normal and traditional monetary policy whilst acknowledging that debt and demographics mean the neutral rate for interest rates is now lower than before the global financial crisis.

Normalisation

The ECB is widely expected to announce the tapering of its QE programme this September. Europe is behind all other developed market central banks in monetary policy. This is because policy making during the crisis was slowed down due to the complicated politics of managing a multi-country economic system.

However, we note the ECB’s purchases of corporate bonds have slowed ahead of this taper. The absence of a large public sector buyer of credit is another sign of more normal market conditions to come.

Good luck.

 

Asif Godall
Co-Chief Investment Officer