Adam Parry – You want a prediction about the weather? You’re asking the wrong Phil
What a massive day tomorrow is. So massive that my meagre grasp of the English language can scarcely do it justice.
For at Gobler’s Knob in Punxsutawney, Pennsylvania, the prognosticator of prognosticators, Punxsutawney Phil, will decide whether we are in for six more weeks of winter. As legend has it, if Phil sees his shadow in the early morning sunlight, the winter chill will continue until the spring equinox. Weirdly, if it is a rotten, cloudy morning lookout for warmer temperatures and an early spring.
Yes, folks it’s Groundhog Day, and the since 1886 thousands have made their way to Gobler’s Knob to hear the inner circle – wearing top hats and speaking in a Pennsylvania Dutch dialect – translate the news from groundhogese.
In all those 135 years, one suspects there has never been a Groundhog Day like 2021. Let’s face it, everything is just weird and surreal, and has been ever since the virus started spreading globally almost exactly 12 months ago.
And it’s not just weird and surreal from the perspective of empty streets and closed shops. The world over the last year has just become plain bonkers.
And to add to what has been a crazy year we now appear to have an uprising in the financial markets emerging, the internet mob are now trying to topple the hedge funds. Case in point, this week’s utter nonsense of the Reddit ramp-up of the share price of GameStop, a company with a business model that is possibly more out of date than most of my wardrobe. Hedgies apparently shorted the stock in a play that is as old as the hills – check out Gordon Gecko – and some thought they would be vulnerable if they could get the price to rise.
Thanks to the web, this get-rich-quick plan spread like wildfire, driving the price up by over 700% in a week. Utter madness and thankfully swiftly stepped on by the SEC.
Cue uproar on social media about how unfair it all is. One rule for the giant nasty hedge funds, another for the poor downtrodden student who is trying to make an honest buck.
Except it is not an honest buck. It’s a quick buck. And the regulators know this. So in order to stop the mob buying every single stock ever shorted by hedgie and thus creating the equivalent of a financial bubble bath, they have tried to nip it in the bud.
Quite sensible? I couldn’t possibly comment in fear of being lynched by the baying mob. I’ll let you make your own mind up.
And then there is the new issue market. Now for a few years there have been a few deals that just defy any logic and fly out of the window. But this year feels even worse as real money looks for yield in every single nook and cranny. Take last week’s 10yr Greece at 100bp over swaps. Greece! And then there was the 60yr Slovenia at 75bp over.
None of it makes very much sense to me. But then again what do I know.
Anyway, enough of that nonsense and on to more pertinent and logical matters.
Groundhog Day was, of course, immortalised by the genius Harold Ramis in the 1993 film starring Bill Murray and Andy MacDowell. Murray plays world-weary weatherman Phil Connors, who is sent to cover the festival, becoming trapped in a time-loop and being forced to relive February 2 over and over again.
And there is more than a little bit of Groundhog Day about the equity markets in the month of February.
To show this, we’ll have a look at the performance of the S&P500 over the last 10 years in February.
Starting in 2010, and after peaking at 1,150 in the middle of January, the index had dropped nearly 10% by Feb 8, before a major rally into spring.
2011 actually saw the New Year rally persist until Feb 18, when the index closed in on 1,359 having started the year 100 points lower. But a month later we were more or less back where we started the year.
Feb 2012 was remarkably stable, with a slow steady rally continuing the rise seen off the October 2011 lows. It was a similar story in 2013, although we did get a mid- February wobble that saw the index drop back 3%.
We referred back to type in 2014. Having reached a peak of 1,845 by the third week of January, the index was back below 1,750 by Feb 3. 2015 was really whippy, with a big sell-off at the end of January offset by a decent rally in the first two weeks of Feb.
2016 was a hideous start to the year, with the index falling from 2075 on New Years Eve to 1860 in the middle of January. Here was then a bounce into the end of the first month, but the first two weeks of Feb saw the index down below 1830.
2017 was a rare positive February, but a year later the index fell from 2875 at the end of January to 2581 on Feb 8, a fall of 10.2% in a couple of weeks. In 2019, Feb saw the rally off the end of 2018 lows continue, albeit with a few minor bumps, while in 2020 we should all remember the sell-off that saw 34% of the value of the index eradicated between Feb 18 and the middle of March.
And we can go further. 2009 saw a 20% drop in February. 2008 a 12% drop, 2007 a 3% fall. Feb 2006, 2005, 2004, 2001, 2000 all saw drops. Need I go on?
So there is more than a little bit of Groundhog Day about equity markets in February and there is a very good reason for that.
In most of the years mentioned above we have seen a decent end to the previous year, and that has been followed by the traditional New Year’s optimism for the year ahead.
By the time February comes around, most people are bored and sober and start to take stock. And the conclusion nearly always seem to be that stocks are over-valued and it’s time to book some profits.
All of which brings me to 2021. Stocks over-valued despite last weeks sell-off? Tick. A correction well and truly overdue so that investors can put some money back to work in the market? Tick. A complacency that we are never going down again? Tick.
As Neddy Ryerson would say in the film “That’s a doozy”.
So get those puts on, say with a strike around 3,500 level for March expiry. At least with the options you know your downside risk. In these crazy markets you just never know.
Right. Onto this week’s recipe. And it’s a nice warming groundhog stew.
Only joking. It’s a nice warming fish pie for 4.
Take 500g of smoked haddock – not the horrible yellow stuff, use a naturally smoked fish – and poach in full fat milk with a bayleaf, shallot and a few peppercorns for 5 minutes. Remove the fish and flake, retaining the milk drained of the aromats.
Now make a roux. Melt 50g butter in a saucepan and add 45g flour. Cook for 5 minutes to take the rawness out of the flour and then gradually add the milk until you have nice white sauce. Thin down with a little white wine and then add 250g of salmon cut into chunks, 250g of raw prawns and 100g of fresh peas. Cook until the prawns turn pink, then add a tablespoon of Dijon mustard, the juice of a lemon and a decent handful of chopped dill. Check for seasoning and allow to cool with a cartouche on top to prevent a skin forming.
Take 750g Maris Piper potatoes and boil until very tender. Mash without butter or milk and leave to cool.
To assemble the pie, take a deep pie dish and fill 2/3 way with the sauce. You can add some hard boiled eggs at this point but I don’t bother. Top with the spuds and dot the top with butter. Bake in the oven at 180c for about 40 minutes and then finish under the grill to crisp the top. Serve hot and bubbling with a nice glass of white Burgundy now dry January has finished.
Enjoy, and let’s hope that Phil has some much needed good news tomorrow!
On the Agenda:
- MPC: Thursday: MPC meeting; rates and QE expected unchanged at 0.10% and GBP895bn.
- ECB: Wednesday: Non-monetary policy meeting of GC in Frankfurt.
- Friday: Enria and de Guindos speak at 20th German Symposium at LSE.
- Monday: Markit Mfg PMI; ISM; Construction Spending.
- Wednesday: Markit Svcs PMI.
- Thursday: Initial Jobless Claims; Factory Orders; Durable Goods.
- Friday: Unemployment; NFPs expected at 50k; rate at 6.7%; participation rate 61.5%; weekly hours 34.7.
- Monday: German retail sales; Markit MFG PMIs; Italian unemployment; area wide unemployment.
- Tuesday: French CPI; Area wide GDP.
- Wednesday: Markit SVCS PMIs; Italian CPI; Area Wide CPI.
- Thursday: Area wide retail sales.
- Friday: German factory orders; French current account; Italian retail sales.
- Monday: Consumer credit; M4 money supply; Markit Mfg PMI.
- Tuesday: Nationwide house prices.
- Wednesday: Markit Svcs PMI.