ArgonautArgonautArgonautArgonaut
  • About Us
    • Business Model
    • Regulation
    • Community
    • Jason and the Argonauts
    • Disclaimer and Disclosure
    • COVID-19 Visitor Requirements
  • Corporate Finance
  • Stockbroking & Research
    • Stockbroking
    • Research
    • Best Execution Policy
    • Administration Forms
    • Open an Account
  • Special Situations
  • News
    • Latest News
    • Morning Notes
    • Latest Research
  • Contact
    • Careers
      • Advisers
      • Graduate Program
      • Internship Program

Equities: Bank Got Your Back

    Home Latest Research Equities: Bank Got Your Back
    NextPrevious

    Equities: Bank Got Your Back

    By Wendy McEvoy | Latest Research | 0 comment | 26 June, 2020 | 0

    Capitalism; going, …. going, ….

    “Got your back”: The US Fed has led a global charge to lop the bottom off the business cycle.  Many business actions today would not be contemplated if there were repercussions from getting it wrong.  But players are being protected from negative consequences, and it is arguably eliminating capitalism’s creative destruction and misallocating capital.  Yet the equity market doesn’t mind.  The “Fed’s got your back” and “don’t fight the Fed” are handy and appropriate taglines for stock market bulls.  

    Onward and upward: A combination of boundless liquidity and near zero interest rates have provided a firm floor for asset prices.  To the point where bad economic news often turns out to be good news for stocks.  If something goes wrong your friendly neighbourhood Central Banker will “do something”, right?  It leaves traditional, old-fashioned investors who rely on quaint notions like fundamentals scratching their heads.  

    “Rational” zombies: We believe the stock market is being rational with the cards it has been dealt. The most important price of all, the interest rate, has been manipulated along the entire yield curve.  Stock price multiples have climbed as a result, while investment alternatives have disappeared.  Efforts to eliminate business cycle troughs have extended into financial markets and we would argue here too price discovery on the downside is being blocked.  There are zombie companies out there.  Perhaps zombie investors too, but that doesn’t mean they’re irrational.  They’re just playing the game.  

    Wall Street vs Main Street:  Is it a dangerous game?  Modern Monetary Theorists may argue otherwise but we stick to the “no free lunch” adage.  Growing debt and unnatural price discovery comes with risks.  While the “risk-free” rate may have fallen, the “market risk premium” has gone up and has gone largely unrecognised (ignored?) in our view.  Further, the unintended consequence of propping up financial markets is the widening gap between the “have’s” on Wall Street and the “have not’s” on Main Street.  Friction, polarisation and angst are intensifying, compounding economic and financial risks.

    Equity investment view

    There is little choice but to remain invested.  Interest rates are not going up anytime soon and further monetary easing is likely.  This will continue to prop up Wall Street (even if it does little for Main Street).  But risks should be acknowledged and taken into account in equity portfolio construction.  COVID-19 “recovery” and “back to work” stocks may offer the most upside after losing the most, but come with greater risks.  

    We believe there should still be decent exposure to “stay at home” stocks and good quality companies with little debt and strong cash flows.  This should reduce downside risk while still offering some upside.  Finally, it’s curious the “risk-on” surge in equity markets has gone hand in hand with firm gold prices.  Perhaps more than a few investors out there think a bit of gold insurance is a plan.  A good idea in our view.

    To access the full report please log in under the Client Area at the bottom of this page.

    Argonaut’s Client Area allows you to view delayed share prices, access Argonaut’s wealth of Research as well as create custom portfolios and set up company watch lists.

    If you would like to access our research please contact us to create an account.

    No tags.

    Related Posts

    • New Research – Peregrine Gold (PGD) – Percentile Gold Grades at Newman

      By Wendy McEvoy | 0 comment

      On Friday 5th of August, Peregrine Gold Limited (PGD) reported spectacular visual gold results from shallow drilling at the Peninsula Prospect, 30 kilometres west of Newman. These results follow percentile grade (>10,000 g/t) rock chipRead more

    • New Research – Global Lithium (GL1) – Manna From Heaven

      By Wendy McEvoy | 0 comment

      We provide a major update to our Global Lithium (GL1) research. GL1’s share price has performed well since IPO in mid-2021. The Company is progressing Resource drill outs at the 100% owned Marble Bar andRead more

    • Ausgold Limited (AUC) – Study a Starting Point

      By Wendy McEvoy | 0 comment

      Broad brushes, Ausgold’s Katanning PFS published last week was in line with our expectations. Overall, the demonstration of the ability to front-end high-grades in the mine plan means that Katanning outperforms our previous mining-scenario weRead more

    • Good Drinks (GDA) – FY22 Preliminary Results

      By Wendy McEvoy | 0 comment

      The FY22 EBITDA result was in line with our thinking, and GDA confirmed a step change in earnings in FY23 on the back of the new Venues and Agency segments. This will be applied toRead more

    • WA Gold Advanced Explorers – March 2022 Quarter Review

      By Wendy McEvoy | 0 comment

      Argonaut has reviewed quarterly results for select WA gold advanced explorers. This groups March Q lull in spending was short-lived with previous expenditure highs eclipsed. Spend will have to slow down unless strong results areRead more

    NextPrevious
    • About Us
      • Business Model
      • Regulation
      • Community
      • Jason and the Argonauts
      • Disclaimer and Disclosure
      • COVID-19 Visitor Requirements
    • Corporate Finance
    • Stockbroking & Research
      • Stockbroking
      • Research
      • Best Execution Policy
      • Administration Forms
      • Open an Account
    • Special Situations
    • News
      • Latest News
      • Morning Notes
      • Latest Research
    • Contact
      • Careers
        • Advisers
        • Graduate Program
        • Internship Program
    Argonaut

    Argonaut | The Natural Choice in Resources.
    © 2022 Argonaut.

    Corporate Finance
    Stockbroking & Research
    Contact Us

    Argonaut | Perth

    Level 30, Allendale Square, 77 St Georges Terrace Perth, WA, 6000 Australia

    clientservices@argonaut.com

    ABN 72 108 330 650

    Argonaut | Login

    Client Area Help
    Register for Access to Client Area
    Privacy Policy
    Financial Services Guide 
    Website Disclaimer

    Copyright 2021 | Website ⚡ by Start Digital